LORD JUSTICE SCOTT: Good morning Lady Thatcher. Thank you very much indeed for coming here this morning to help us with the Inquiry. I am very grateful to you for giving up your time to do it, and thank you also for the written statement you prepared and sent to us, which we have read. Most of the questions we want to ask Presiley Baxendale on my left will be asking, but I may come in and ask a few myself.

A: Thank you.

MISS BAXENDALE: Lady Thatcher, I should like to start with the establishment of the Guidelines in December 1984. The relevant papers are in CO32/PM2, and I would like to go to page 44. What I am intending to do is go through the questionnaire, so we are starting at page 1 of the questionnaire. The document at page 44 is Lord Howe 's minute to you of 4th December 1984, which sets out the proposed Guidelines, and you will find them at page 45. The Guidelines themselves are set out there and you approved the Guidelines at page 52, if we just look at that before going back to the minute itself, on 12th December. Mr Powell wrote on your behalf:

“The Prime Minister is content with what is [end p3] proposed”, if you go to page 52.

I am not using the questionnaire. If you look at the bundle of documents.

A: The numbers on my sheet are not quite the same as the numbers on yours.

Q: I am not going through the questionnaire in the sense of going to page 52. It is page 52 of the bundle, CO32, the big bundle. Sometimes the pages have several numbers, but this one luckily only has one. If you see on 12th December 1984, if you have that at page 52, it is the letter sent on your behalf by Mr Powell, saying that the Prime Minister is content with what is proposed, and that was the document that started at page 44 of the bundle?

A: Yes.

Q: Lord Howe 's minute. The page I would like to look at is page 45, which sets out the Guidelines in detail. Do you have that?

A: I have it.

Q: Paragraph 3. You will see it says:

“I have concluded that our interests would best be served if we were henceforth to apply the following set of Guidelines to all deliveries of defence equipment to Iran and Iraq.”

That is the condition 1 that deals with lethal equipment, and that has been the position before and continues to be the position throughout.

Then paragraph (ii): “Subject to that overriding consideration, we shall attempt to fulfil existing contracts and obligations.”

Then paragraph (iii): “We should not in future sanction new orders for any defence equipment which, in our view, would significantly enhance the capability of either side to prolong or exacerbate the conflict.”

Paragraph (iv): “In line with this policy, we shall continue to scrutinise rigorously all applications for export licences for the supply of defence equipment to Iran and Iraq.”

Some of the witnesses we have had have described these Guidelines as a framework, within which they had to work, or as a hurdle which exporters had to cross in addition to other existing constraints on exports. Does that fit in with how you saw the Guidelines?

A: I see the Guidelines as exactly what they are, as written down there. Lethal equipment we do not export, and, as you said in your question, that had been the case before these Guidelines, and continued to be the case all the time. Otherwise, I would not have wished [end p5] to put a gloss on those Guidelines. They are exactly what they say, Guidelines, they are not law. They are Guidelines.

Q: Did they have to be followed?

A: I beg your pardon?

Q: Did they have to be followed?

A: The Guidelines are for the guidance of officials to be consistent. Of course they have to be followed, but they are not strict law. That is why they are Guidelines and not law and, of course, they have to be applied according to the relevant circumstances.

Q: In paragraph 7, if we go to page 47, the paragraph says:

“Officials of the FCO, MOD and DTI will rigorously scrutinise all applications for defence equipment to ensure that they fall within the Guidelines”, yes?

That is quite strong language, is it not, “rigorously scrutinising” and “ensuring that they fall within the guidelines”?

A: Yes, but remember, they are Guidelines. It is not like interpreting law when you would have had several sections, followed probably by several schedules, which you would have constantly had to revise because new examples were coming up. They are Guidelines for administration. They are expected to be followed.

Q: They are expected to be followed?

[end p6]

A: That is why we have them, but they are Guidelines, they are not a strict interpretation that you would get of a legal system. That is why they are Guidelines.

Q: I do not think there is any suggestion that they were the law, but I just want to understand whether you thought they needed to be followed.

A: Of course they need to be followed. They need to be followed for what they are, Guidelines.

Q: And paragraph 7 goes on:

“An important new part of this consideration will be prior assessment provided by the defence operational staff, of the extent to which the supply would significantly enhance the offensive capability of either side or their ability to wage war actively.”

The assessment in the end was carried out, this prior assessment was carried out by what is referred to as the MOD Working Group, that is the defence operational staff who became the MOD Working Group.

So far as you are concerned, could an application for a licence, which the MOD Working Group had found would amount to a significant enhancement of either side, could that application nevertheless be granted on the basis of other factors, for example export concerns or concerns about industry? Do you see, the point of the question is you have an Export Licence Application.

[end p7]

The MOD Working Group assesses it and decides that the equipment would significantly enhance the capability of either Iran or Iraq to wage war. In those circumstances, can the equipment be granted for other factors, as I said, for example, encouraging exports?

A: We would not, I think – I say “we would not”, I was not involved in the actual application of these Guidelines. I was involved in the policy, and to approve the policy. Obviously the policy had to be applied in the circumstances.

The precise question was, Miss Baxendale? I am sorry, you are more familiar with this. I have seen so much paper that I had never seen before. I was concerned with the policy, not with the administration.

Q: The question is, if you look at paragraph 7, it refers to there being an important new part of the consideration which would be prior assessment, produced by defence operational staff, that is the MOD Working Group, of the extent to which the supply would significantly enhance the offensive capability of either side. What that does is it ties in with Guideline (iii) on page 45. Do you remember, that is the one that says: “We should not in future sanction new orders for any defence equipment, which, in our view, would significantly enhance the capability of either side.”

[end p8]

So you have (iii), which says: “We will not in future sanction any order which would in our view significantly enhance the capability”. Then you say:

“How are we going to know whether it significantly enhances the capability?” That is dealt with in paragraph 7 by the Foreign Secretary referring to the fact that there is now going to be this important new part, played by the MOD Working Group, which is going to be – it is a recommendation whether or not the equipment significantly enhances the capability of either side.

What I was asking you about was, if you have the MOD Working Group saying: “This equipment will significantly enhance the capability of either side”, ie we, the Working Group, say that there is going to be a breach of Guideline (iii), can other factors, such as employment in the United Kingdom override Guideline (iii)?

A: I do not believe you would ignore the Guidelines solely for exports or a similar factor like that. In other words, you had to be within the Guidelines, unless there was some overriding factor of such a nature that you have not yet put to me. I do not believe you would do it for exports.

Q: I am sorry, you said you would not

[end p9]

A: That would be a breach of the Guidelines and a breach of the general meaning and general application of the Guidelines.

Q: If there was going to be this exceptional overriding, would you expect that to go up to Ministers and maybe the Cabinet and perhaps even to yourself?

A: If there was an exceptional case, and the only one that came to me that I recall was the question of the export of the Hawk trainer, which was a big order, a big issue. The big things would come up with full written submission of all the facts and all the arguments, in the most excellent and familiar way in which it was done and would probably go to Overseas and Defence Committee. Only one came up, as I recall or have been able to identify in that way. That was the possibility of supplying the Hawk trainer to Iraq.

Q: We are going to come on to that one. That is the only example we have of it coming to you too. Your view is that you could not have a breach of (iii) on the basis of export considerations or of industry saying: “We need to supply the equipment”, or something like that? It would only be exceptional circumstances, very exceptional circumstances, something of the type like Hawk, which would then go up to Ministers and perhaps to yourself?

[end p10]

A: Yes, there may be borderline cases, but, in that case, your (iii) is not fully met.

Q: Exactly.

A: It was obviously the borderline cases that the committee would have found problems with, but, in general terms, in policy terms, the question of exports and, in fact, seeing that you had enough jobs and so on, would only come into play if the Guideline of (iii) were met or were properly regarded.

Q: I would like to go back to paragraph 7 on page 47. We looked at the first part of paragraph 7. The final sentence is: “It will also be important to ensure that British companies understand the criteria which applies to defence sales, so they do not commit resources to projects which cannot be fulfilled.”

Clearly, it is important, is it not, that British companies understand the criteria, that they should know the criteria within which the Government is working?

A: Yes, under that very, very luminous, large control order, which again I had never seen until I came here, they would very soon find out. I doubt very much whether they could have committed resources before they found out whether the goods would be licensable or not. There was certainly a gap between the decision on these Guidelines and announcing them to the House. During [end p11] that gap, those who wished to apply for a licence, before they committed resources, I would have expected to have found out from the relevant department and from the relevant group of Ministers. So they would have found out that certain Guidelines were being applied.

Q: I think you are saying you would have expected that rather than you know it happened?

A: Indeed. Perhaps I – thank you very much, I will not answer any hypothetical questions. Any questions which require a view as distinct from knowledge, yes.

Q: It is only because I think, on the documents, we have one company being informed, but no others, of the actual form of the new Guidelines?

A: Most of the documents before me I have never seen. Obviously I was not concerned with detailed administration. I was concerned with policy, or I was concerned with big issues and, if a big issue or a difference between the Ministers who were responsible for carrying out the policy, they could not agree, it had to come up the line. If it came up the line, it would have been the subject of an excellent submission, with the relevant facts and the relevant arguments for decision by either a higher authority, an ad hoc group of Ministers, or Overseas and Defence committee of the Cabinet.

[end p12]

LORD JUSTICE SCOTT: Lady Thatcher, I think there is an important distinction between the contents of the order, which is very detailed, as you say and you have not seen it until you looked at it for the purposes of this Inquiry, on the one hand, and the Guidelines on the other.

So far as the order is concern, which states what is licensable, that is the law. That is quite different, as you pointed out, from the Guidelines, and, certainly, exporters, who wondered whether the goods they wanted to export were subject to export control, that is to say were licensable, could go to the relevant Government department, either the DTI or the Defence Export Sales Organisation, and ask. They would know about the contents of the order in the sense that it was a public document, but the other question is whether you would have expected, as a matter of proper practice and procedure, the Guidelines to be made known to exporters, the Guidelines not being the law, but being the criteria which Government set itself to take account of before allowing licences in respect of goods which ex hypothesi were subject to control.

Would you have expected the Guidelines to be brought to the attention of exporters?

A: They were, of course, but there was a gap between [end p13] agreeing the Guidelines and them being brought into the whole public domain, and it is that gap to which I understand that you are referring.

Q: I think that is the point.

A: The policy was decided. The Guidelines were operated, but there was a gap between making them public. Obviously, one wonders about this. I understand that it was rare for such Guidelines to be made public. There had been other cases when they had not been made public, but there obviously was a gap. Nevertheless, the Guidelines were being applied. I recognise there was a gap between the public indication of what the Guidelines were.

Q: As a matter of Government practice and procedure, are Guidelines, which Government sets for itself in order to decide how to exercise its export licensing power, the sort of things that you would expect to be made public, or would you expect them to be kept within departments?

A: Your Lordship, they were made public, within a few months, and I would expect them, myself, to be made public, because these were quite clear Guidelines and made it absolutely clear, and I think the public were very pleased to know that, both before and during these Guidelines, lethal equipment was not exported. They were mainly concerned with other nations that were [end p14] exporting it and we were not.

Then you had the more detailed one in paragraph (iii) and certainly I thought it was absolutely right to make the Guidelines public. Your question goes to the gap in approving the policy of the Guidelines and not making them public, although they were operated from the beginning, as I understand it.

MISS BAXENDALE: Can I pick up that point? In paragraph 8 on page 47, it says:

“Subject to your agreement and that of our colleagues, I propose that the new arrangements should be implemented immediately. I do not believe, however, that it would be appropriate to seek an opportunity for a high profile announcement of the new arrangements in Parliament. Rather we should allow the new Guidelines to filter out in answers to Parliamentary questions and enquiries from the media. We should also take the opportunity of responding to approaches from Members of Parliament and press and our main friends in the Arab world, and the Americans, to ensure that the policies are properly understood.”

That is picked up, if you go to page 49, and it is from the Secretary of State for Defence, his comments on the proposal. If you look at the end of the first paragraph, Mr Hesletine says:

[end p15]

“In addition, I believe the decision not to make a high profile announcement on the new Guidelines in Parliament is the right one. Whilst we must clearly place the new policy on record, in order to gain the presentational advantages we hope to secure from it, we must be wary of giving rise to expectations of more fundamental change than we intend.”

It is clear from that document that Mr Hesletine was envisaging, rather than there being no high profile announcement, that the policy was going to be placed on record. Did you envisage at the time that the new policy would be announced?

A: The policy was placed on record. The policy was placed on record, and I think, with respect, we have already dealt with the gap.

Q: I do not think we have quite yet dealt with it.

A: I think this is to the Foreign and Commonwealth Secretary. I do not think I saw this document at the time. It has not got my initials on it anywhere.

Q: Would it not go to you if it says: “I am sending copies of this minute to other members of OD and Sir Robert Armstrong”?

A: Miss Baxendale, if I had seen every copy of every minute that was sent in Government, I would have been in a snow storm. I think the Guidelines were made. They were [end p16] approved. There was a gap in announcing them. This was the reason put up by one of my Cabinet Ministers for doing it, who had considered the problem. We did announce them, and in the meantime they were applied. It may be that your Lordship would take the view that they should have been announced earlier. That is a matter for your Lordship.

LORD JUSTICE SCOTT: One of the things I am trying to do is to see what are the reasons for announcements which are made and announcements which are not made. It may be that there is not a pattern, but it is interesting to see whether there is, and one starts with the Guidelines which were formulated at the end of 1984, not announced for a year, applied during that year, and it is quite elusive to put one's finger on the reason why they were not announced at once.

A: The reason, apparently, is given in the minute to which you have referred me as being the reason of being the relevant Cabinet Minister. I accepted his judgment. I do not substitute my own judgment, unless there is a great need to do so and I have discussed it with the Cabinet Minister, for theirs.

We have 19 departments of Government, we have 83 Ministers. Policy I do, and I am of course answerable twice a week to the House of Commons, twice a week, and [end p17] certainly many, many unexpected things come up during that time. But I think the reason has been given in that. It is for your Lordship to consider whether it was a valid reason. With hindsight, which I do not have, I should not now be getting these questions on the Guidelines, which it was policy to publish, unusually, if they had actually been made known earlier.

MISS BAXENDALE: I would just like to go on with what you thought at the time, on page 47 at paragraph 8, the Foreign Secretary wrote to you saying:

“I do not believe that it would be appropriate to seek an opportunity for a high profile announcement of the new arrangements, rather we should allow the Guidelines to filter out through answers to Parliamentary questions and enquiries from the media.”

What I asked you – and I was not quite sure of the answer – is did you envisage that the new policy would be announced shortly, when you received that document? Did you think that the Guidelines would be announced quite soon?

A: I do not think I took a view on when they were expected to be announced. This refers only to a high profile announcement. There are ways of doing it much more quietly, and rather we should allow the new Guidelines to filter out through answers to Parliamentary questions [end p18] and enquiries. I think perhaps they were a little bit fearful of international queries, as they indicate:

“Our main friends in the Arab world, and the Americans, to ensure that the policies are properly understood”.

This may well be why they wanted the gap in order to explain that, but they are not, in fact, keeping them in response to enquiries. They were letting them go. I accept I do not think there is anything more that I can usefully add.

I accept that this is a matter which his Lordship and presumably, then you, at his instance, are querying and that, I think, is a matter for your judgment. The fact is they were made public, and, when enquiries came, they were not concealed. The policy, I am absolutely certain was right, that we have the Guidelines, the policy that they do, in fact, reveal, I believe, was right.

Q: Can we just go on a little bit about this? I suggest, and I am sure you would agree, that it is right in a democratic society that there should be an opportunity for debate of Government policies?

A: I do not query with that. We had them every day, several of them every day. New ones starting at 10.00 at night and maybe at midnight and maybe at 2.00 in the [end p19] morning. If people did not get the right answer to a question, or got an answer to a question, with which they were most dissatisfied, then they get up and say:

“I shall raise the matter on the adjournment”. I do not recall, though I have not trawled through, it being raised upon the adjournment.

Q: That is an adjunct to ministerial accountability, is it not? You need to know about a policy to be able to discuss it and for the Minister to be accountable for it?

A: Miss Baxendale, I think you are asking the same question in a different way. That is how it comes to me.

Q: Good, so –

A: I have indicated the answer to all of these questions, I think, and I do not think I can usefully add anything more.

Q: Can we go to paragraph

A: I was concerned with policy. Yes, they were, in fact, announced. There was a gap. Various reasons had been adduced and advanced, and they were not concealed, and they were operated, and I think, if there had been enquiries, they would have been told. So it comes down to what his Lordship considers to be that gap and whether he considers that it would have been better had there not been a gap. That, I think, is a matter for [end p20] his Lordship.

Q: If we could go to paragraph 27 of “Questions of Procedure for Ministers”, I think it is attached to the letter we sent to you yesterday.

A: I am very sorry, a letter sent to me yesterday has not arrived.

Q: I am sure you know the document anyway. It is called “Questions of procedure”. The paragraph I want you to look at is paragraph 27, which merely sets out again a document called “Questions of Procedure for Ministers”. It is issued by the Cabinet Office, and attached to it are the duties and responsibilities of civil servants that were set out by Sir Robert Armstrong. Perhaps that would be the document you are more familiar with, which is right at the end of that little bundle of documents, if you go to the very end of it. Do you have a document called “The duties and responsibilities of civil servants in relation to Ministers”?

A: Yes, I have.

Q: I am sure you are very familiar with that document?

A: It is one one reads from time to time.

Q: That is what I thought.

A: It is then put away for safe keeping, because one is very familiar with the process of accountability towards Parliament. Every Minister is answerable, usually for [end p21] an hour, possibly three-quarters of an hour, if I follow them, usually once every three weeks. The department is answerable to any adjournment debate which may be raised, or any question which the opposition may choose on which to have their supply day. These things can come up at any time. All Ministers are very familiar with their accountability to Parliament.

Q: I would like you to look, then, at the paragraph – I am still on Sir Robert Armstrong 's minute. You will see towards the bottom of the first column, there is a citation from the Government's reply to the Seventh Committee from the Treasury and the Civil Service committee. Do you see that? It starts: “The Government believes that…”

A: Yes, I have that.

Q: “The Government believes that Ministers are well aware of the principles that should govern their duties and responsibilities in relation to Parliament and in relation to civil servants. It goes without saying that these include the obligations of integrity. They include the duty to give Parliament and the public as full information as possible about the policy decisions and actions of the Government and not to deceive or mislead Parliament or the public”, yes?

A: Indeed.

[end p22]

Q: Again, that, I am sure, sets out the views that you held about the duties of Ministers?

A: I would not quarrel with one word of that.

Q: I presumed that would be the case?

A: Of course I do not.

Q: I was presuming that that would be the basis on which you and your Government, the Ministers, were working?

A: Yes, indeed, but, as I have indicated, the advice to me, and I think there is a document about it, which I had not otherwise seen, is it is quite unusual to reveal Guidelines, quite unusual, and there have been other cases in a document which I have seen since, but have not seen before. I am told that it was quite unusual to reveal them. They were revealed. They were, in fact, published and in the meantime there was no misleading. Anyone who went would have been given advice about them, because they were implemented straightaway.

But, coming back, my Lord, to precisely the same question, I recognise there was a gap. It seems that you have taken a different view of it, from the reasons adduced by Ministers at the time, but I do not think that, when enquiries came, there was any misleading. They were actually implemented, and, therefore, as it says here: “Answers to Parliamentary questions and enquiries from the media”. I recognise that this is a [end p23] matter to which no doubt, judging by the time we are spending on it, your Lordship will give attention. I do not think I can help you further.

LORD JUSTICE SCOTT: I hope we are not spending longer on it than we need, but you made a remark which interested me just a moment ago. You said that you understood that, generally, Guidelines were not disclosed publicly in Parliament. The Guidelines that were formulated at the end of 1984 were an exception in that respect?

A: Until then, we had had the general policy which is the one to which you drew my attention, the first one, we do not supply lethal weapons – lethal equipment.

Q: In so far as it may have been unusual to disclose the Guidelines, what would your understanding have been of the reason for not, in the general way, disclosing Guidelines?

A: That they were not in the nature of law. They were the guidance of administration. I do not think that we had had quite such details as this, because this was related to a particular conflict, and, therefore, it might have been better had we published it earlier. But I do not think I can help you any further.

Q: It is not something of which there is any reason to suppose that you would have been aware, but long before these Guidelines were ever formulated, there had been [end p24] Guidelines in place within the Foreign Office for guiding Foreign Office officials as to how they would deal with export licensing decisions that came to the department. Those, so far as I know, never were made public. These were, so, if one looks for the reason why these were, it looks to be a reason which takes these Guidelines out of the ordinary category?

A: Or it is something which we would have preferred to have in the public, because it makes it more open and we did get them made public.

Q: Did presentational reasons, ability to explain Government policy, come into the decision to make the Guidelines public?

A: I think, as far as the presentation was concerned, what we were most concerned about was that lethal things were not exported, and then we had a conflict which lasted a very long time, partly through Iran and Iraq from 1980, and in 1984 we decided to have more effective Guidelines, perhaps a more open approach.

MISS BAXENDALE: I think you said about ten minutes ago that the Guidelines were published within a few months, and you said just now that it might have been better if they had been published earlier. In fact, I think they were – they were published, they were announced on 29th October 1985. I think that is about 11 months later, [end p25] and, if we go to the background note and the comments of the officials concerned at the time they were published, it is FCO 2/3, page 309….

A: Is there more paper? I have never seen so much paper.

Q: That is only a part of it. There is much more.

A: The majority of it I have never seen as Prime Minister.

LORD JUSTICE SCOTT: As the nature of the Inquiry we had to look at a huge amount of paper, I am afraid. We will try to bore you with as little of it as we can.

A: Which page?

Q: It is page 309. I think you actually have it open at the page.

A: I am not quite certain to whom this document was submitted. It looked to me –

Q: It did not go to you, it is the document that was

A: To the Parliamentary unit?

Q: Yes, it was answering the question.

A: Who answered it?

Q: You will find the Parliamentary Question on page 307. It was from David Steel, and Lord Howe answered it. You will find the Hansard citation at page 305. This is the actual announcement on 29th October 1985.

A: Yes, it could not, I must point out, have been announced to Parliament between the end of the summer session and the beginning of the autumn session, so there was quite [end p26] a gap there during which it could not have been announced to Parliament. This is advice to the Foreign Secretary who, in fact, used the occasion to fully publicise the –

Q: Exactly. I think I should say, we will get the reference for you, but there have been earlier opportunities for announcing the Guidelines, and I believe we asked Sir Richard Luce about it. I think there was one in April 1985, when the Guidelines as set out here were – the opportunity was not used.

I wanted us to, for the moment, just look at what was said and why they were announced in October 1985. You have seen the question, the citation from Hansard is at 305, with a question from David Steel and then Lord Howe sets out the Guidelines, but, if we go to the background note at page 309, a document was passing between Foreign Office officials and it is from Mr Collins. He is saying he submits a draft reply and background note to Mr Steel 's Parliamentary question. If you go to the background note, which is at page 308, it refers to the question from David Steel, and in the second paragraph it reads:

“The proposed answer to Mr Steel presents in full the ministerial Guidelines governing the supply of defence equipment to Iran and Iraq agreed by Ministers [end p27] in December 1984. This is the first time that we have presented the Guidelines in full, as opposed to summary form. We have, however, on previous occasions, made it clear that our current policy was to prevent the supply of equipment, which would significantly enhance the capability of either side to prolong or exacerbate the conflict. Mr Steel 's general question provides a good opportunity to present the Guidelines in full to the House. It will also be useful to have registered the elements in the Guidelines about existing contracts and obligations, against the likely event that Mr Steel will ask further questions specifically related to armoured vehicle spares.”

It looks, reading that document, as though one of the factors why the Guidelines were being presented in full was so that they could then be used to answer further questions that were expect from Mr Steel.

A: Miss Baxendale, I am not going to comment on the background note to a Minister, who had great responsibilities and who was fully capable of discharging those responsibilities. I would not have seen many of the documents he saw, let alone the background notes.

It still, I think, comes to the same question. The full Guidelines were not published until the date in [end p28] October. They could not have been published. If they had not been published by the end of July, they could not have been until October. The Foreign Secretary thought it advisable to publish them then. I accept the Foreign Secretary's judgment. I would not like to comment on background notes to him, on answering a question in the House. It still comes to the same question, and the same answer, which

Q: I am not sure that you have quite answered the question that I am about to ask. Do you consider it satisfactory that it took nearly eleven months to – the words are from the official, Mr Day, “for the Guidelines to trickle out”?

A: The Guidelines were, in fact, coming out and some of the language, apparently, although I have not seen the document – as a matter of fact I have not seen the answer. Even some of the language in the Guidelines was being used. I understand that it was given in summary form. The difference, therefore, between us is whether the full Guidelines – we come back to it again and again and again and again, whether the full Guidelines –

Q: I do not think I got an answer to the question.

A: The question, I understand, is that your criticism is that the Guidelines were not published in full [end p29] immediately. That is quite clear. They were not, for reasons which have been adduced by the Foreign Secretary, or Secretary of State for Trade and Industry. Nevertheless, it is a fact that the Guidelines were applied. Nevertheless, it appears to be a fact, although I was not in charge of administering these things, but only in charge of policy, that answers were given to questions, where they came from those obviously concerned, because they wanted to know what the policy was, or from the press.

So there was no attempt to conceal them in that way. The question arises: Why were they not, in fact, published in full? I have indicated that it is quite unusual to publish them in full. I am glad that we got the decision out to publish them in full, that they were published in full, and that the Foreign Secretary answered as he did.

The question will still remain as to the gap between the decision and the full revelation of all of the Guidelines.

With the greatest respect in the world, I do not think we are going to get any further by trying to put glosses or looking at a background note on a Parliamentary question to the Foreign Secretary. I am sure you will find it very interesting. I might find it [end p30] very interesting now. I found a lot very interesting now that I never knew before.

Q: Can we go to another bundle? We can put away FCO 2/3 and if we go to FCO 13/1, page 29. What I have done is I have moved on to 1986. This is a document that was written in the context of discussing the possible licensing of small boats. In that context, the Ministers and official were considering the Guidelines generally. One document, it is the one we are looking at, is the documented of 4th July 1986. What I wanted to ask you about are the comments on page 29. There Sir David Miers comments and I would like to look at them.

A: Miss Baxendale, I did not see this document at the time.

Q: I do not suggest you did see it.

A: I have no knowledge of it, until it was drawn to my attention in your note. It is the comment of an official to a Minister on how the policy should be administered.

Q: That is right.

A: I was concerned with the policy. The administration was by officials under another Cabinet Minister, and usually three departments were concerned. I could not possibly have got involved in these things. I could never have done my job as Prime Minister on policy if I got [end p31] involved in all of these things and I do not again, with respect, think it right that I should now comment on a document which I never saw; it was the responsibility of another Minister which never came to me and was concern with the detailed administration of policy. If there had been queries about the detailed administration by Ministers, or if there had been a difference of view between Ministers, it would have come up in a full submission. In the meantime, they were doing their best to administer the policy.

It is very difficult, my Lord. I did not see most of these documents. Nor could I possibly have seen them. Policy is for the Prime Minister. We had 22 in Cabinet and 21 Ministers in 19 departments. Delegation matters in Government as between a Prime Minister and the Minister responsible for the department, and it also matters in the department. Otherwise, it would just not be possible to carry on all of the business of Government.

LORD JUSTICE SCOTT: The purpose in putting some of these notes and minutes to you is not because there is an expectation that you might have seen them at the time, it is because of particular aspects of them which raise questions which I am going to have to consider, and you, with your – you of course were Head of the [end p32] administration at the time, Head of the Government at the time, but you have an almost unparalleled experience in Government, and it was the thought that you might – that your comments on some of the aspects that arise from these minutes would be of assistance, that is at the background of our desire to invite your attention to them.

I do not think Miss Baxendale has actually asked the question. Could we leave her to ask it, and then see whether you would be able to help me with an answer to it?

MISS BAXENDALE: I was going to ask you about paragraph 2, which is a comment from Sir David Miers, who was a senior official in the Foreign Office, and it is a general statement, which is why I was going to ask you about it. If we look at it, it says:

“I believe the Guidelines should be regarded primarily as a set of criteria for use in defending against public and Parliamentary criticism, and criticism from the Americans and Saudis, whatever decisions we take on grounds of commercial and political interest. In following these concrete interests, we have to make sure that our decisions are consistent with the Guidelines, but the war poses too many problems, and our interests are too finely balanced to allow [end p33] mechanical application of the Guidelines to dictate our policy.”

Then he is dealing with the detail in the other paragraphs. He is dealing with the pros and cons of the actual question of licensing the small boats.

What I wanted you to look at was paragraph 2. Reading that, it suggests that there the Guidelines are being used as a public defence for criticism, but the actual decisions are being taken on the grounds of commercial or political interest. Did that tie in with your understanding of how the Guidelines were to be used?

A: I did not get that conclusion from this paragraph. Would you repeat it? It seemed to me you used words which were not in the paragraph.

Q: If you look at the paragraph, he says

A: I have it.

Q: He says that: “The Guidelines should be regarded primarily as a set of criterion for use in defending against public and Parliamentary criticism. Whatever decisions we take on grounds of commercial and political interest.”

So you take the decision on the basis of commercial and political interest, and you use the Guidelines as a defence against public and Parliamentary [end p34] criticism?

A: I think I have already answered a question about that earlier. It is the same question about: does your export policy override the Guidelines? The answer is no, it does not. There are circumstances that might make the Guidelines even more restrictive. For example the Hawk case was such a case, but I do not believe they would override the Guidelines and, believe you me, if you have to account to Parliament for your use of these, you will not get away with any such suggestion and nor would you wish to, nor would Ministers wish to, in my view.

Q: If we go to DTI 36

A: I would also say, Miss Baxendale, I do say this – his Lordship said yes, I have had a good deal of experience of Government, I find it very difficult to comment on a note, written by a civil servant, without attacking him, or without attacking the Minister, because I would not tackle the civil servant directly, I would go through the Minister, and I think it makes it very, very difficult.

We are looking at this with hindsight. I did not have hindsight. We set down policy. We relied on very competent officials in the Ministry. I think a quick glance at these documents will show the thoroughness, [end p35] the candor, the way in which they attempted to do their job, and I would find it very difficult, in their absence, to criticise something, and something which I have not really had time to consider or to take up with them, and I would not take it up with them, but with their Minister.

Q: Could we just go on to DTI 36, page 999, which is a report of your comments? It is a document of 19th August 1986, and you had received a letter from the Foreign Secretary from the Department of Trade and Industry, trying to have export licences approved. This letter was written back on your behalf:

“The Prime Minister has now seen the Secretary of State's letter of 8th August seeking the agreement of OD colleagues to the granting of an export licence to Westland Aerospace to enable it to undertake the refurbishment of two hovercraft owned by the Iranian Navy since 1971. The Prime Minister has commented that we must adhere rigidly to the normal Guidelines in these matters, not to do so would mean going back on the assurances which the Prime Minister has given on many occasions to Arab countries.”

That document sets out the view of yours in August 1986, that the Guidelines must be rigidly adhere to?

A: Yes, entirely. I do not quarrel – I thought it was [end p36] succinct and to the point, which not all documents are. But you cannot apply Guidelines in a vacuum. You have to apply them to the circumstances. Circumstances may alter your decision. This seemed to me clear. Someone drew my attention to something that had been copied, that did not normally come to me. There is a policy point here. It came up, it got a brief, succinct, answer.

Q: You were saying there, and I think it ties in with what you were telling us this morning, that you considered there must be rigid adherence to the Guidelines?

A: You must, in fact, satisfy the Guidelines. You might, in certain circumstances, apply them even more restrictively, as when something came up to me, because extraneous circumstances were such

Q: Hawk is an example?

A: That is why they are Guidelines.

Q: What I would like to do, just bearing in mind what you were saying on 19th August 1986. Have you put away the document from Lord Howe? It was in CO32/PM2 and it was at page 47 I was looking at. I had not quite finished looking at the Guidelines themselves and what was said on page 45. Do you have page 45? That was the one that set out the Guidelines.

Towards the bottom of paragraph 4, Lord how said:

[end p37]

“At the same time (iii) and (iv) will mean, in effect, a more restrictive approach to new business, although this would not be a total embargo which would damage our substantial commercial interests. The wording of (iii) enables us to retain a modicum of flexibility.”

You are lucky to have avoided the immense amount of conversation we have had from other people about what these words mean, but I would like to ask you, we have seen how you were talking about rigid adherence to the normal Guidelines in August 1986. What did you understand the reference to the “modicum of flexibility” tied in with (iii) on page 45 to mean?

A: It means exactly what it says. Exactly what it says. You do not apply Guidelines in a vacuum. You apply them to particular applications under particular circumstances, a modicum of flexibility. I am not going to put a gloss on it, Miss Baxendale.

Years of answering questions in Parliament mean that I have been invited to put a gloss on many things. Any gloss will alter the meaning of the words. Any gloss will be the basis of a dozen more questions as to why the gloss? Keep the actual wording. That seems to be perfectly all right to administer. I believe they did administer it. As I say, you cannot apply [end p38] Guidelines in a vacuum. It has to be to a particular set of circumstances, in a particular application. The circumstances may change. That, indeed, gives you the modicum of flexibility.

It is not easy always to make decisions under that particular Guideline, as you can see. It is not like having two or three schedules setting down particular circumstances. I would not put a gloss on those words.

The Foreign Secretary said: “This will enable us to retain a modicum of flexibility.”

Why try to change the words?

Q: I think you have answered the question by saying that what it does is it depends on the circumstances. What you do is you look at how the war is going at the time, and decide whether or not the equipment is going to amount to a significant enhancement?

A: You could, in fact, apply the Guidelines more strictly. The Guidelines refer to –

LORD JUSTICE SCOTT: Guideline (iii)?

A: Yes, I have it: “We should not in future sanction new orders for any defence equipment which, in our view”, and that is the test, “would significantly enhance the capability of either side to prolong or exacerbate the conflict.”

Then my Foreign Secretary referred to a modicum of [end p39] flexibility, and circumstances may change. I would not alter the wording “a modicum of flexibility” in any way. I would not alter that wording. Once we alter that wording, we are in great difficulty.

Q: I think you have said

A: You could apply it more strictly.

Q: I was going to say, you said it several times: “We could apply it more stringently”. Do you think this allowed the Government to apply the Guidelines less stringently?

A: I have answered the question several times this morning. I believe that the Guidelines had to be met. You could not just release the Guidelines. There may be borderline cases, and that would give rise to judgment. There were three Ministers there, junior ministers, who met regularly and, if they disagreed, they would send a decision elsewhere. If it came to me, it would come up with a proper submission as to what the nature of the disagreement was, what the facts were, and all the arguments which had been advanced on one side and then on the other, and it would come up with a request for a decision and we would have put it to, probably Overseas and Defence Committee, if it was a very important one, or I might have asked a Minister to sit on it in an ad hoc way.

[end p40]

Q: What I would like to do now is to move on to 1988/1989. I am just seeing if I can give you the page. It is page 6 of the questionnaire. I think, if you are trying to follow this on the questionnaire, it is easier. The start of the passage is at the bottom of page 6.

A: Is this the document 16th November 1993?

Q: At A.8.1, we refer to a document that I would like you to go to next, which is in the same bundle we were just looking at, CO32/PM2, page 186.

A: In this bundle?

Q: Yes.

A: I have it.

Q: Where we are now is there has been the Iranian acceptance of the UN Security Council Resolution 598, and the Foreign Secretary minuted you with this paper:

“The Economic Consequences of Peace in the Gulf.”

There was another paper on Iran, but I do not need to ask you to look at that.

What I would particularly like you to do is, if you could go to page 196, the paper, as a whole, set out, in quite broad terms, the general position in relation to Iraq, in relation to all types of trade, but what I want to concentrate on are the paragraphs that are particularly relevant for us, which are, as I say, page 196 of the bundle, paragraph 20?

[end p41]

A: I have it.

Q: It refers to the fact that:

“In the early post conflict era, the opportunity for sales of defence equipment to Iran and Iraq will be considerable. Our defence sales policy will need to be reviewed. We doubt if the review will lead to early withdrawal of the Government Guidelines. Nevertheless, we can use discretion within the Ministerial Guideline to adopt a phased approach to borderline cases, relaxing control on a growing number of categories as peace takes hold.”

Then there is a reference to:

“We must take care not to upset other customers”, and there is a reference to military training.

If you could then go on to page 203, which is Mr Powell 's advice to you on this document, I would like to look at the bottom. He summarises the documents and the overall considerations.

At the bottom of 203, he says:

“The general point to bear in mind is that there is likely to be a growing clamour from British business for a relaxation of restrictions on defence sales, and for greater credit, together with allegations that we are allowing ourselves to be outpaced in the scramble for contracts by France. Germany, Italy, because of our [end p42] reluctance to improve political relations. This is something we shall simply have to put up with as a price of following a consistent and honourable policy, where others have been prepared to make shady deals, eg over hostages.”

Did you consider that it was important to follow a consistent and honourable policy?

A: Yes.

Q: Then, if we could go to page 205, there is a reference to: “Agree to the strategy, subject to being kept closely informed and consulted on all major decisions”?

A: Yes.

Q: I presume it is you who have written “yes” at the bottom of 205?

A: Yes, it was a very, very good summary of this rather long paper, which had two limbs to it, the one on the economic consequences and the other on the position with regard to diplomatic representation, et cetera.

Q: Then we see that “yes” put into documentary form, if we go to page 206, which is the letter of 2nd September 1988, that is written by Mr Powell to the Foreign Office and indeed is circulated around the various departments.

It refers to the fact that you have read the paper and that you are, in general, content with the strategy set out in the two documents, and for the short-term [end p43] steps, and those were dealing with the other strand, about representation in Iran and Iraq.

Then, if we go down to the next paragraph:

“The general strategy, however, will obviously require decisions over the next few weeks and months, on a number of difficult and sensitive issues, such as the Guidelines for defence sales to Iran and Iraq, and the pace with which we build up relations with Iran. The Prime Minister will wish to be kept very closely in touch at every stage and consulted on all relevant decisions.”

How often did you ask to be kept closely in touch in this way?

A: Having got that minute I would have thought that the big things would have come to me and we would leave it to departments and to my own office to follow it up, which they would have done.

Q: What I did not know from this, is as we are only looking at one topic, we see this letter; I do not know how often it is that a department will get a letter from your Private Secretary saying: “The Prime Minister wants to be kept closely in touch”. Was that the normal thing, or should they say: “Gosh, this is jolly important, this is unusual”?

A: If they got a copy of such a letter, with such a [end p44] paragraph on it, they would think it necessary to keep me in touch with the major developments or policy changes, or anything which they judge – and you had to rely on other people's judgment – we should know.

Q: It was their major decisions and policy changes?

A: Policy changes I think would have to come to me, a policy change, because this had been an announced policy, and a policy change would have to come, but, as indeed when it came to a fundamental review of the Guidelines, and I asked Douglas Hurd to take it on

Q: In July 1990?

A: That is right, yes, that was a policy change.

LORD JUSTICE SCOTT: Policy changes, you mentioned also major decisions, or words to that effect?

A: Difficult decisions. Hawk was a major decision. It is easier to recognise than to define.

MISS BAXENDALE: I understand. Do you remember we looked at paragraph 20 of the note at page 196? I referred you to paragraph 20 of the note.

A: Paragraph 20 is: “The early post conflict era…”

Q: Do you remember that paragraph?

A: Yes.

Q: Did you consider, by the letter of 2nd September 1988 that you were approving any specific decisions on the Guidelines, or their relaxation?

[end p45]

A: No. If you look at the Guidelines, Guideline (iii)

Q: I think it is 47 in the bundle that is in front of you at the moment – I am sorry, it is 45 in the bundle.

A: Yes, the first one remained absolutely in place.

“We maintain our consistent refusal to supply any lethal equipment to either side”, and that remained, lethal equipment did not go. The one that had to be changed, if only because the circumstances had changed and therefore we had to look at the change in circumstances, was: “We should not approve orders for any defence equipment which, in our view,” and then comes the test, “would significantly enhance the capability of either side to prolong or exacerbate the conflict”.

As the conflict had terminated

Q: Obviously that cannot stand?

A: Obviously, if you kept the meaning or the policy of it, the wording would have to be varied, because the conflict was over. So, if you kept the meaning or policy of it, the wording had to be changed.

LORD JUSTICE SCOTT: That is what I find very difficult

A: To relate to whether

Q: What would be the meaning or policy of it, other than what it says, which is not to significantly exacerbate the continuance of the conflict?

[end p46]

A: I think that the identical policy – and your Lordship may agree or disagree with this – may I have my

Q: Your statement?

A: No, I have all of the Guidelines set out somewhere.

MISS BAXENDALE: Do you want to look at the revised wording?

A: Yes.

Q: It is in MOD 21, page 63.

A: The proposed change of Guidelines. The one that I have read out was:

“We should not in future approve orders for any defence equipment, which in our view would…” Those are taken through on the revised Guidelines. “We should not in future approve orders for any defence equipment which, in our view would…”

The earlier one needed changing because the conflict ended said: “Significantly enhance the capability of either side to prolong or exacerbate the conflict”. The change was: “Of direct and significant assistance to either country in the conduct of offensive operations.”

I think we would maintain, or certainly those advisers would maintain, and I think if one looks at surrounding documents, which I only saw when I came to this Inquiry, that they thought that that was a change [end p47] of circumstance and not a change of policy, a change of circumstance was from the end of the conflict to the possibility of breach of the ceasefire.

Obviously, the language of “enhance the capability of either side to prolong the conflict” did not obtain, because the conflict was over. What you have taken on is: “…equipment which would be of direct and significant assistance to either country in the conduct of offensive operations.”

Looking at documents, with hindsight, which I had not seen, which I did not see when I was Prime Minister, and looking at their view of these documents, that again occurs in another note, which I have not seen, or did not see, which I have now seen, which was known as the Iraqi note, it seems to me abundantly clear that, when they proposed this change, they did not regard it as a change of policy, but as a change of circumstance and of substantially applying the same policy to the change of circumstance. That would explain why certainly the thing did not come in writing to me, although it may well be that I was just told there had been a change without a different policy.

LORD JUSTICE SCOTT: What is your view? Plainly there was a change of circumstance. The facts speak for themselves. A ceasefire was in place. Plainly the [end p48] original Guideline (iii) was formulated to deal with the then continuing war, so there was a change of circumstance and a new formulation was needed.

There were, I would have thought, various different formulations that one could think of to take account of the ceasefire. This was the one that was chosen. Is this the sort of thing that, having regard to the letter of 2nd September that we have seen, you would have expected to have been referred to you?

A: If they regarded this as a change of policy, yes, it should have come to me. If they did not regard it as a change of policy, but a change of wording arising from the surrounding circumstances, it may have been mentioned to me by one of my secretaries. I have no recollection if it was.

Looking since at the surrounding papers, there is indeed, I think, in papers to which your Lordship very kindly drew my attention, a reference in one of the papers to there being a trial period. There is reference also, in the Iraq Note, which is the note which I had not seen until I came here

LORD JUSTICE SCOTT: The 1990 note?

A: Yes, which shows how they regarded it. So it would seem to me that one is looking for evidence of how they regarded it. They did not regard it as a change of [end p49] policy, because of a change of circumstance. That, I think, in view of the fragility of the ceasefire at the time they were looking at it, was how it should reasonably be regarded. A change of wording, due to change of circumstance and not a change of policy.

Q: That is a there is a plethora of documents with reference to the change. Sometimes it is referred to as a change of policy. Sometimes it is referred to as a change of interpretation. There are various diffe, rent ways in which it is described, and I think that we were going to invite your attention to some of these documents to see whether that was consistent with your understanding of what was happening. Probably it i, s best to leave further attention to this important point until you have seen some of the underlying documents.

A: Which I have not seen at the time. There is a difficulty, that I am asking questions on documents that I would , not have seen at the time and did to the see at the time.

Q: The importance, from my point of view, is that you have plainly informed the departments, in the letter we have looked at on 2nd September, that you wanted to be , kept in touch with all relevant decisions.

A: That is if there was a change of policy or a relevant decision, yes, I should have been informed. It may have [end p50] been that it was mentioned to me one day, as sometimes these things happen, that this was not a policy change or a significant change. That I recognise your Lordship may take a different view on.

MISS BAXENDALE: Before we come on to those documents, I did not make the question clear enough, when I was trying to get you to look at this in your letter of 2nd September 1988. It has been suggested to us that, by this letter of 2nd September 1988, page 206 of CO32/PM2, that you were agreeing to a relaxation of the Guidelines.

A: That is in the second paragraph, are we referring to?

Q: In the letter, you say that you are content with the strategy set out in these two documents and then you say:

“The general strategy, however, will obviously require decisions over the next few weeks and months on a number of difficult and sensitive issues, such as the Guidelines for defence sales to Iran and Iraq, and the pace with which we build up relations with Iran. The Prime Minister…” and then a passage about you will want to be kept closely in touch.

What has been suggested is that looking back at paragraph 20 of 196, which is the one I referred you to, some of the witnesses have suggested, in respect of paragraph 20 at 196, that I asked you to look at

[end p51]

A: This was in the original economic consequences of the peace document?

Q: Yes, this was a paragraph that was in the document circulated by the Foreign Secretary, and you will see it refers at the top of 197 to:

“Nevertheless, we can use discretion within the ministerial Guidelines to adopt a phased approach to borderline cases, relaxing controls on a growing number of categories as peace takes hold.”

Is that at the top of page 197?

A: I would not regard – and the paragraph at the bottom of September 1988 – as an understanding that they were going to consider these matters.

“The general strategy, however, will obviously require decisions over the next few weeks and months, on a number of difficult and sensitive issues, such as the Guidelines for defence sales to Iran and Iraq and the pace at which we build up relations with Iran, the Prime Minister will wish to be kept very closely in touch at every stage and consulted on all relevant decisions.”

I would not regard that as consent to take relevant decisions, without consulting me.

Q: Or indeed, I think it has even been said even more than that, that you were consenting, that, by this letter, you had agreed to various things?

[end p52]

A: That letter does not read to me like

Q: It does not to me, either, but that has been suggested.

A: I think, Miss Baxendale, you are giving very good evidence as to why one should not depart from the actual wording. I do not depart from the actual wording of that letter at all. It seems to me to be very, very clear.

Q: You wanted to be kept in touch?

A: Yes, I could not know when everything was going to happen, but I did rely on someone coming to say: “Look, this is a change”, if it is a change of policy.

Please remember, this is against the background of about three boxes of papers every night, so they would not bring something to me unless it was relevant for me, within the terms of that.

Q: What I would like to do now is go very briefly through the correspondence which follows. I do not want to go through it in any detail, but there are one or two passages I would like to bring out, particularly in the light of some of the answers you have just been giving.

Q: 1988. This is after the ceasefire. It is a follow on to the economic consequences paper.

[end p53]

The paper was circulated, but it was not circulated to you, and it was not taken any further, because of the Foreign Secretary's concern about the treatment of the Kurds. It was a paper that was suggesting various options that might be considered in relation to the Guidelines, but it never went any further. It does not come to you.

Then, on 28th October 1988, the Foreign Secretary wrote that he still thought it was premature to circulate the paper, but he thought that the IDC co-operate flexibly within the Guidelines, and he referred to an example, which was refurbishing the hovercraft, as a case in point?

A: May I have the letter?

Q: It is page 8 of the questionnaire. We set out this history in the summary form for you. I am not going to ask you any questions about that. I am just setting out the background for you. You see on page 8 of the questionnaire, we referred first to the decision of the Foreign Secretary not to circulate the minute of 9th September. That is in paragraph B.

A: This is the one that I did not see.

Q: No, you did not see these. There is no suggestion that you did see these. In fact, we are just about to come to the ministerial correspondence that was copied to [end p54] you.

After this document, there was ministerial correspondence between Mr Clark, Lord Trefgarne and Mr Waldegrave, relating to both what should be done about the Guidelines and also about a large batch of outstanding licence applications.

We pick it up in FCO 2/6, at page 64. It is the first letter in the correspondence. It is from Mr Clark to Mr Waldegrave and Lord Trefgarne, 4th November 1988.

A: From Mr Lillie, to Mr Steadman?

Q: It is page 64.

A: This one starts at 65.

Q: Do you now have a letter of 4th November 1988?

A: Yes.

Q: As I say, from Mr Clark to Mr Waldegrave and it was copied. If we go to page 65, do you see it says:

“I am copying this letter to the Prime Minister and David Trefgarne.”

I think this is the beginning of the correspondence being copied to you. What the letter is primarily concerned with is the large batch of Export Licence Applications, which have been outstanding, because of the ceasefire and because of consideration about “what shall we do now there is a ceasefire, with this equipment?”

[end p55]

At this stage, the officials in the DTI had considered and had said to Mr Clark that this is a kind of document, in the light of your letter of 2nd September, that ought to be coming to you?

A: I had not seen this letter. I do not believe I saw it at all. Letters that were copied to me were obviously selected within my department. I do not believe I saw it.

Q: That is what I understand. It would come to your department and they would decide whether it was sufficiently important –

A: They would say: “If there is any further action on it, we will wait for the action to come”.

LORD JUSTICE SCOTT: Who would take the decision?

A: Who was the Private Secretary – one of my private secretaries. One was in charge of foreign affairs, one was in charge of home affairs, one was in charge of Parliamentary affairs, one was in charge of Treasury affairs, and there was one who is the general – the rest of the general things.

Q: When –

A: If it was on a Treasury matter, it would be my Private Secretary on Treasury matters, on foreign affairs and defence, my Private Secretary on foreign affairs and defence.

[end p56]

Q: Correspondence of this sort would come into your office, come to the attention of the relevant Private Secretary?

A: Yes.

Q: Who would then read it?

A: Yes.

Q: Consider whether he should draw your personal attention to it or file it. Would that be performed?

A: Yes. I see nothing on this which indicated that it came to me. Normally if it came to me, it would have either my initial on it, or a note from the Private Secretary that he had shown it to me.

Q: There would be a record of that?

A: That is right.

MISS BAXENDALE: One would not expect to see any record like that on this document, because I am using the FCO bundle out of convenience.

Still looking at this letter, as I say, it is primarily concerned with this large batch of outstanding Export Licence Applications, but you see on page 65, as well as saying the bit about “I am copying this letter to the Prime Minister”, two paragraphs above, I am looking at page 65, Mr Clark says:

“I hope that you and David Trefgarne can agree to the above proposals. I recognise, of course, that whatever is agreed between us, will require the Prime [end p57] Minister's approval in the light of her Private Secretary letter of 2nd September.”

Then I think, from what you are saying, what would happen is that, in the Cabinet Office, they would take this letter, but they would await developments before bringing it to your attention?

A: Yes, whatever we decide would require approval. The normal rule would be that, if action was to be taken, when the action was to be taken, which required approval at that stage, it would come to me.

Q: And you get the bundle of letters, the background note?

A: I would normally get a summary submission, which was gutted, as you see one we have earlier been talking about.

Q: That is the start letter, and then that is followed at page 40 of the same bundle by a reply from Mr Waldegrave, and in that letter, 14th November 1988, he is agreeing that, within the existing Guidelines, there can be a more flexible attitude towards Export Licence Applications and, in particular, he agrees to the refurbishment of the hovercraft. Again, he is saying there should be a paper written about this large batch of outstanding Export Licence Applications, and he again copies the letter to the Prime Minister, do you see at the bottom?

A: Yes.

Q: Then I am afraid we have to change bundles. There is a further letter from Lord Trefgarne to Mr Clark on 17th November. I do not think, in fact, we probably need look at that. Again it is copied to you, and then, if we can pick up in bundle FCO 13/1, page 142, 30th November 1988, I do not want to go into it in detail, but it is from Mr Clark to the two other Ministers. He is pleased about the Westland contract being agreed, but he is then suggesting that there should be a revision to the Guidelines. In fact, more than that, if you go to 143, his final main paragraph:

“I therefore propose that the block on all Export Licence Applications to Iran and Iraq delayed on grounds of enhancement”, that is Guideline (iii), “should be lifted, and our policy on licensable exports to both markets should be brought in line with the practice of other western allies, and bearing only on the Munitions List goods.”

At that stage he is in effect suggesting we should retain Guideline (i), the lethal equipment?

A: Most Ministers were suggesting various things in correspondence to each other. Until a decision which was a change of policy was required, it would not have come to me. I am being shown all kinds of things, [end p58] correspondence between officials to junior Ministers, between junior Ministers, one to another, which I would never have seen and which I did not see.

LORD JUSTICE SCOTT: This is a proposal for a change of policy. Would that not come to you?

A: If that proposal were agreed by others, then, at that stage, it would come to me, as you will have seen. This must go to the Prime Minister before it is approved, but not otherwise, no.

I just cannot keep tabs on all of this. It just has to be delegated, and it is delegated. If they have a proposal which they jointly approve, it would come to me, for approval, because I had been asked to be consulted on all relevant issues.

Q: The Private Secretary, you would expect him to note the proposal and to file it and wait to see what happens before putting it to you?

A: Yes, indeed, because there was not anything to be asked to approve, and because, as a matter of common sense, I am afraid a Guideline which referred to the conflict really had to be changed as a matter of circumstance when the conflict was over.

There were negotiations, as you know, during that time. We were concerned, lest the conflict should break out again, and those were the differing circumstances [end p59] which required some adjustment to the Guidelines. Whether it was a policy adjustment or only an adjustment of circumstance I think, from the line of cross-examination, is a matter upon which we may

MISS BAXENDALE: We will come on to what happens, but at the moment what I am looking at is that at this stage the Ministers concerned are sending all the documents to you, in this correspondence. Obviously, from what you have just been saying to us, you do not see the letters, but at this stage Mr Clark is sending copies of this letter to you as well as to the other Ministers, is suggesting this is the kind of thing he should be referring to you?

A: That is coming to my office. As I say, I have seen many, many things here which I never saw, nor would I expect to see. I was responsible for policy, and the devolution of administration was for Ministers. If they wanted to change policy, it would either go to a Cabinet Committee, of which I may or may not have been Chairman. If it was economic policy, I was Chairman; if it was overseas and defence policy, I would be Chairman; if it were home affairs, I would not be Chairman. It might be chaired by either by a Minister or the Home Secretary. It was if it was the Legislations Committee, I would not be Chairman.

[end p60]

LORD JUSTICE SCOTT: Can I just ask, the correspondence coming into the attention of the relevant Private Secretary, he is not showing it to you for the time being, because there is nothing to be approved, and you have explained. I do not know whether you would remember, but would you expect him to mention this sort of correspondence to you? I imagine that he mentioned things to you –

A: The volume was enormous, the volume of correspondence coming in was enormous. He would use his judgment, and they used it very well. They are very skilled.

Q: He would sometimes mention to you things that he had not actually put on your desk?

A: He sometimes mentioned things to me, yes, because it was a quicker way than putting –

Q: Do you have any recollection of this topic being mentioned?

A: I do not at all. The topic that I remembered, because it came to me clearly, was Hawk.

Q: That was some time earlier than this?

A: I do not remember the details of this. I took a particular interest in nuclear capacitors and anything that was concerned with chemical weapons, because nuclear capacitors, Customs had, in fact, done a very skilled piece of work, and detected some nuclear [end p61] capacitors actually going in transit to this country, and had stopped them.

The thought of anything nuclear getting into the hands of a Government in Iraq who would have no scruples about the use of the ultimate weapons was absolutely horrific and who we knew were trying to get a nuclear capability, and also we knew they had used chemical weapons. I was taking a particular interest in those and he would have mentioned something to me, probably, about those and also knowing that I was concerned about it, had minuted the appropriate authorities, intelligence and so on.

LORD JUSTICE SCOTT: Lady Thatcher, it is 11.30, and it is normally the time we take a short break so people can draw breath. Would it be convenient if we adjourned for quarter of an hour?

A: Of course.

(11.30)

(A short break)

(11.45)

MISS BAXENDALE: Lady Thatcher, what I was doing was going through the ministerial correspondence. I had just about got to the meeting between Ministers that happened on 21st December 1988 and is referred to on page 161 of FCO 13/1. It is a letter of 23rd December 1988. It [end p62] refers to the matter being sent to you, other than being copied to you.

A: Is that quite right, Miss Baxendale? What it says is:

“We are now consulting Gulf posts in Washington about the proposed changes in our Guidelines. When we have their reaction, we shall be recommending to our Secretary of State that he put these changes formally to the Defence and Trade Secretaries and the Prime Minister”.

“When we have these reactions”, so the letter would not have come to me, because there was some action to be had.

Q: I do not think this letter was being copied to you, because it was considered, when the matter had been formalised, it would then be put to you and to the other Secretaries of State?

A: When there was a specific proposal, yes.

Q: What I want to do is to look and see what was being said at this time.

In paragraph 2 they have agreed that it would be right to consider modifying the Guidelines. Then in paragraph 4 they say:

“The Ministers agreed to consider the attached revised Guidelines, which were circulated at the meeting. The aim of the revised wording would be to [end p63] reflect the various concerns of departments to provide a line which would be publicly defensible and to give us additional flexibility over the supply of certain kinds of equipment, while retaining the Government's ability to decide on the export of individual items according to changing circumstances. The Ministers agreed that these Guidelines would need to be considered carefully by the Secretaries of State and cleared with the Prime Minister.”

If you go to page 163, there set out is the proposed revised Guidelines. You will see, in (iii), that the wording has changed to the wording that you referred to earlier this morning, that:

“We should not in future approve orders for any defence equipment which, in our view, would be of direct and significant assistance to either country in the conduct of offensive operations in breach of the ceasefire.”

Then there has also been the addition of (v), although I do not think that takes the matter much further.

It is clear that, on 23rd December, or indeed on 21st December, the Ministers considered this wording, saw it as a revision, and saw it as something that would need to be cleared with you?

[end p64]

A: It is clear from that wording, I agree. Whether that wording came – whether they actually agreed that that should be a new Guideline, or whether we tried it experimentally, I do not know.

Q: We are going to go through this.

A: Can I just say, this wording did not come to me. It may have been mentioned to me, but it did not come to me, as I would expect a change of policy to come to me, and it depends upon, I think, the interpretation of the change of the wording. The main thing was kept throughout, our consistent –

LORD JUSTICE SCOTT: When you said it may have been mentioned to you, if that was the case, who would have been likely to have mentioned it to you?

A: If it had been mentioned to me, it would have been my Private Secretary who mentioned it, but he would have mentioned it in the belief that there was no change of policy, that it arose from a change of circumstances, that the policy continued. Any change of policy would have to come to me.

Q: The person would have been your Private Secretary?

A: Yes, indeed.

Q: Who mentioned it.

A: Yes. In these papers, there are so many I have seen this time, which I never knew before, there is some [end p65] reference, in some of these papers, I am sure Miss Baxendale would know where, that these were being tried on an experimental basis.

MISS BAXENDALE: We are about to see that.

A: Whether that meant before they were going to come to me that they were trying them out, and also, my Lord, in the Iraqi paper, which I had not seen until I had to look at things to come here, it tells you in there what they thought they had done, if anything, and, when they were considering change – a major change of Guidelines, which was the one in 1990, it was a change, really, from the substance of the 1985 Guidelines.

LORD JUSTICE SCOTT: We will come to that in due course.

A: That is a question of meaning, and I do not think I am entitled to say whether there is any change. I only believe that they thought, when they came to apply it, that it was a change of circumstance, from conflict to a possible breach of ceasefire.

LORD JUSTICE SCOTT: I quite agree.

A: You are seized of the point, my Lord.

Q: I have to read all the documents and decide whether there has been a change or not. What I am particularly interested in is to invite your attention to the relevant documents, and to see whether, given the expectation which you had, in the letter of 2nd [end p66] September, that we have already looked at, you feel that the change, whatever one may describe it as, was something that ought to have come to your attention?

MISS BAXENDALE: We have just been looking at a document of 23rd December 1988, and it referred, as I say, to proposed revision and set out the change in wording. It was considered that this would be eventually brought to your notice.

The correspondence continued, and I think the letter you were thinking about, if we go to 192, 10th January 1989, Mr Clark to Mr Waldegrave. At the bottom of 192, you will see a reference to:

“The proposed revision of Guidelines tabled at the meeting was helpful, although both we and the MOD representatives have reservations over the wording. Although there was insufficient discussion of the wording, we see no real problem in adopting it as a temporary working premise, from the IDC while officials try to seek a wholly acceptable form of words.”

Then, over the page: “When such agreement is reached, we can proceed to formalise the situation by putting the changes to our respective Secretaries of State and the Prime Minister.”

Then, however, he goes on to say. He is referring to the correspondence that has been going on with the [end p67]Gulf States and Washington:

“The recent telegram from Washington implies their acceptance of the proposed revision and that it should be the subject of public announcement. Neither we, nor, I believe, the MOD feel that such an announcement is either necessary or desirable. Any such announcement would trigger a significant number of enquiries from the UK defence industry and press, as well as interested third parties in the Gulf. With so many conflicting interests, any change would be likely to upset someone. We would, therefore, favour the implementation of a more liberal policy, without any public announcement.”

I think that, in clear terms, is setting out that at this stage the Minister was seeing that this was going to be a more liberal policy, that this is something that needed to be put – the changes, whichever the words would be agreed, would need to come before the respective Secretaries of State and the Prime Minister, and that at this stage they did not think it would be desirable, because any announcement was bound to upset someone, so they favoured the implementation of this more liberal policy without a public announcement.

A: Yes, also they said: “Any such announcement would trigger a significant number of enquiries from the UK [end p68] defence industry”. This is a letter of an official, not a letter of a Minister.

Q: I think it is on behalf of the Minister. It is written by his Private Secretary.

A: Yes, it is a letter of an official, and it does, what I would rather not do. It puts a gloss on the “modicum of flexibility”. The moment you have – it uses the word “liberal”. I would not depart from the flexibility.

Q: No, what it is saying is that this, what they are suggesting, the revised wording is the more liberal policy.

A: Later they use the word “liberal” as synonymous with “flexible”. I think the words “a modicum of flexibility” is what the Foreign Secretary said, and those are the words we should adhere to. “A modicum of flexibility” gives you the flexibility, change of circumstances.

Q: I think this letter is addressing a rather different point. It is addressing the revised wording that we saw at page 163, I think, and is seeing that

A: They have not got the revised wording yet, have they?

Q: It had been tabled, but they are going to discuss whether they want to keep that wording.

A: “When such agreement is reached, we can proceed to formalise”. It is the top of that page.

[end p69]

Q: Yes: “We can proceed to formalise it”?

A: “By putting the changes to our respective Secretaries of State and the Prime Minister”. Miss Baxendale, we come to the same point. These were not submitted to me formally. Whether they were just mentioned to me I have no recollection. If there had been any belief that they were a change of policy, as distinct from a change of circumstances, the change of circumstances from the conflict to a ceasefire, I think they would have been submitted.

Q: Lady Thatcher, this matter is envisaging the letter being shown to you for your approval and it is referring to what is going to happen as a more liberal policy. The Minister is actually considering that it is going to be a more liberal policy, because he says so, or rather his Private Secretary says so in terms. This is not a reference back to the old Guidelines. This is talking about the new wording that they have temporary words they are going to consider changing.

A: This is a letter from a Private Secretary of the Minister of State at the Foreign Office to Minister of State DTI or the other way round. It is the Private Secretary of a Junior Minister, who is in charge of the administration, to the Private Secretary of another Junior Minister. Is that correct?

[end p70]

Q: Yes. Those are the Ministers who are concerned with how they are going to revise the Guidelines.

A: Yes, those are the Ministers to whom authority is delegated to make any changes which they think it would be advisable to make, and, if they decide on changes they should come up to me.

Q: Yes, certainly.

A: If it is a policy change.

Q: He is seeing that using revised wording is going to be a more liberal policy, and it should go to you. I am not using a gloss. I am actually using his words.

A: Yes, this is what he was proposing to his Minister, that is what the official was proposing to his Minister.

Q: This letter is following on from the letter of 23rd December, where the account of the meeting of 21st December had been set out, and it attached a revised wording. This letter is reflecting the views of Mr Clark on that revised wording, and is seeing that the revision amounts to a more liberal policy.

I think, if we go on to the 7th February 1989 letter, page 194, it is the reply from Mr Waldegrave, written by his Private Secretary to Mr Clark 's Private Secretary, a response to that letter.

“Mr Waldegrave agrees it is important to retain flexibility in applying the Guidelines on defence sales [end p71] to Iran an Iraq.” He hopes it is not going to lead to more cases. “I understand that the DTI, MOD and FCO officials have agreed the form of words tabled on 21st December appears after all to meet our joint requirements and should continue to be used on a trial basis for the time being.”

That is the wording. If you keep your finger on page 194 and go back to 163, that is the wording that is referred to as a proposed revision and was seen as something that should be put formally to the Defence and Trade Secretaries and the Prime Minister, yes?

A: It was not put formally to me.

Q: I know it was not, but it is those words are now being agreed, that these words are right and should be continued to be used on a trial basis for the time being?

A: Yes.

Q: And it is those same words that we saw on 163 as being called a revision, and something that would need to go to you.

A: It is changed from “significantly enhance the capability of either side to prolong or exacerbate the conflict” to “be of direct and significant assistance to either country in the conduct of offensive operations”.

Q: Yes, it is more liberal. What has happened is it is [end p72] going to let through more equipment, because you now have the words “direct and significant”, and it is limited only to “offensive operations”, whereas the original wording was stricter. The original wording did not say “direct” and did not limit itself to “offensive”?

A: But it did talk about prolonging or exacerbating the conflict, which was – they were at war.

LORD JUSTICE SCOTT: It certainly appears from the letter we have just been looking at that the intention behind the revision was to allow more goods through.

A: It looks to me as if the matter was covered by the original modicum of flexibility stated by the Foreign Secretary, which is why I am always anxious to keep to the Foreign Secretary's wording. They used that in the changed circumstances, which had changed from war between Iran and Iraq, which was over, to our worry, lest it should flair up again

Q: The modicum of flexibility point derives from the use of the phrase such as “significant enhancement”, which is a valued judgment, and there going to be a borderline area, and there is no doubt flexibility in that regard.

The same flexibility is no doubt present in the same valued judgment that the revised Guideline would require. That is constant, but you have a different [end p73] criterion expressed. Of course you have to have a different criterion, because of the ceasefire, but the particular criterion expressed was intended, as one reads the letters that we have been looking at, to allow more goods through?

A: Yes. I wonder, may I ask, my Lord, if the contention is that the change – significant was in both.

“Significantly enhance” was in one and “significant assistance” was in the other. But there is a new word, which is “direct”. Is it the contention that it was that word?

Q: I think there are two significant differences. One is the limitation to direct, as opposed to – excluding, that is to say, something which could not be described as direct and would only be indirect. That is the first. The second is the limitation to offensive operations as opposed to any military – as opposed to an effect on any military capability?

A: So the contention is that the equipment which was not direct was a new point and therefore enabled far many more things to go.

MISS BAXENDALE: Absolutely.

A: And that arose from the use of the word “direct” and not from the word – the use of the word “direct” and the change of circumstance, because the war was over.

[end p74]

Q: I do not think there is that second point. The correspondence and the background documents show that it was not just “direct” it was also “offensive”, because it was a deliberate attempt to allow through dual-use equipment, which could be said to have a defensive role, but not an offensive role.

A: Yes, I hope just looking at what the proposed Guidelines say, which, if we look at what the other one said, which is “would be of direct and significant assistance”, whereas the previous one said “would significantly enhance the capability.”

The “direct”, the contention is that “direct” enables more equipment to go.

I think the view that would have been taken, as it did not come to me formally, was it was not a change of policy, but a change of circumstance. If there was a change of policy then it should have come but it did not.

LORD JUSTICE SCOTT: One way of trying to discover what was in mind is to see what was written and, if one sees the various letters that were written at the time, which is the reason why we were inviting your attention to them, successively, one finds expressed the belief that the new Guideline (iii), sometimes described as a revised Guideline, would allow through more goods and [end p75] represented a more liberal approach to export licensing?

A: Yes, it is “liberal” in one letter and “flexible” in another. I wonder if I have seen these since I knew that I was coming here. I have also seen others which – and in particular the Iraqi note, which I had not seen, but which I think is an excellent summary of the position of all the factors that had to be taken into account, when we generally came on to consider revised Guidelines under Douglas Hurd 's Chairmanship.

It would seem to me, from that particular note, that they thought that what they were revising was the 1985 Guidelines, and somewhere again in the documents, so it is not this one, it may be a summary document that the Minister of defence was operating them on a trial basis.

LORD JUSTICE SCOTT: We have seen the temporary reference.

A: It is quite clear, my Lord, that you take the view that this was a change in policy.

Q: I think that is premature. I think I have to make up my mind about that. I think the only way I can do it is by going through the documents successively and perhaps the last in the line of succession is the Iraq Note to which you have referred and seeing how the documents describe what was happening. It is not always consistent, and because it is not consistent, there is a point for [end p76] decision.

What we are trying to do is to invite your assistance on the documents as they come successively, and we will certainly come in due time to the Iraq Note.

A: Yes, I think, whichever way one takes it, and quite clearly there are two ways, because we are talking about two ways, and my advisers clearly took one way, it did not hold for very long, because I was very soon asking the Foreign Secretary – this was what, in 1988/1989?

LORD JUSTICE SCOTT: We have got to early 1989 now.

A: 1989, I was later asking the Foreign Secretary, because it looked to me as if we really needed quite a change in the Guidelines, we had had peace since 1988 to 1990. We needed a change in the Guidelines, and, therefore, I asked Douglas Hurd to chair the Committee, who was then Foreign Secretary, to take it in hand and report to me. That is where the Iraqi note came to be fashioned. If you look at that –

Q: We will certainly look at it in its place.

A: They were undoubtedly fundamental changes in the Guidelines, much more fundamental.

Q: After that point, yes.

A: Yes. But it never came into operation.

MISS BAXENDALE: Can we go back to page 194 of FCO 13/1?

[end p77]

A: That is the page?

Q: Yes, that is the page we are at. It is 7th February 1989.

A: Have we got to 194?

Q: We have got to 194, 7th February 1989 and it is the reply from Mr Waldegrave to Mr Clark 's letter. It says:

“I understand the DTI, MOD and FCO officials have agreed that the form of words tabled on 21st December appears, after all, to meet our joint requirements and should continue to be used on a trial basis for the time being. Mr Waldegrave is content for us to implement a more liberal policy on defence sales, without any public announcement on the subject. However, there remains the possibility that we will be asked a direct question about our policy, either in the House or by foreign governments. We would propose to answer along the following lines: ‘The Guidelines on the export of defence equipment to Iran and Iraq are being kept under constant review and are applied in the light of ceasefire and developments in the peace negotiations’.”

Then he says he understands that the wording was agreed with the other officials.

“If Mr Clark and Lord Trefgarne are content, Mr Waldegrave proposes we should now put this approach [end p78] to our respective Secretaries of State and the Prime Minister.”

Again, pausing there, it is quite clear, using the words of the letter, that at this time Mr Waldegrave was seeing this as implementing a more liberal policy?

A: On a trial basis.

Q: On a trial basis.

A: And I do not like the use of the word “liberal”. Stick to the original words. I think with everything I am hearing, we stick to the original words.

Q: These are the words that he is using. He is not talking about the original Guidelines, is he? He is talking about what is going to happen, using the new form of words that were tabled on 21st December, and we saw at page 163. He is not talking about the old wording (iii). He is talking about the new (iii).

A: I think, if we go on – if I might say so, looking at this, you can play it both ways. You have in it – where are we? Are we still on 7th February?

Q: Yes.

A: We have flexibility in applying the Guidelines. So go back to the modicum of flexibility. We have the trial basis for the time being.

Q: You have missed out: “Have agreed the form of words tabled on 21st December after all meet our joint [end p79] requirements and should continue to be used”?

A: On a trial basis.

Q: Yes.

A: On a trial basis. The trial basis, I would have thought, meant that it was not fully in operation.

Q: Would it be helpful if I explained that, in fact, those words, the words that we saw at 163, were used by the MOD Working Group and the IDC, which is the Inter-Departmental Committee, in considering the ELAs, from the beginning of January onwards?

A: Miss Baxendale, I do not want to include more words.

Q: No.

A: I want to try to restrict it to what we had actually agreed in the Guidelines, in the original Guidelines, and to see whether they thought that the trial of the new proposed Guidelines was a trial before approval, or not. I do not know. I am sure his Lordship will come to a decision on that.

We have that flexibility that came to Mr Waldegrave, “flexibility”, “trial basis”, and then the last words, the answer to which you drew my attention, would seem to indicate that the whole thing was not approved. It is not for me, in the end, to decide this, my Lord, and I do not like, on this rather sort of detailed argument, when I know it is for you and [end p80] you will construe it on a matter of Guidelines, not law.

LORD JUSTICE SCOTT: Of course, but Lady Thatcher what I do think you can help me with is giving me an indication as we go through these letters, of whether you think the point had arrived, at which you ought to have been informed.

A: On Guidelines, if there is a material change in policy, I would have preferred to have been informed, obviously, and, if I am informed, I must be informed in a letter to me, setting out the difference and seeking my specific approval on. On these things, formality is better. You cannot have an approval informally.

Q: You asked to be informed of what was described in the September letter as “all relevant decisions”. Here we have a decision which, at its lowest, was a decision to implement on a trial basis a new form of words, which we have seen in the revised Guideline (iii). In fact, that formulation went on being used thereafter, but what you can help me with is in telling me whether that falls into the category of what you would have regarded as a relevant decision in terms of the letter that was written on your behalf in September the previous year.

A: May I add just one more thing before you attempt to decide that?

[end p81]

Q: Of course.

A: There is somewhere in the papers I have read since I was coming here, there are references still to the use of the words “would significantly enhance the capability of either side”, something which I have seen which makes me think, possibly, that they were either running the two alongside, or running the one on a trial basis, or that they were finding the old one, “enhance the capability of one side or the other”, should there be a conflict, whether they were using both, enough to make me think that there are some people who did not think it was a significant change of policy, an increase of flexibility.

More than that, I cannot say, because it seems to me that there are – in any cases, I would have preferred to have been informed, because it would have –

Q: That is what I would have expected. Your Private Secretary, expressing your views on 2nd September 1988 letter, had said – and I am sure it was the case – that you did expect to be informed of all relevant decisions, and, as Prime Minister, I would have expected you to have called somebody to account, if you had discovered that they were not adhering to the instruction in that letter they had been given.

[end p82]

A: On all of the papers, there is some reference somewhere, which makes me think that they were applying the old construction to the new – the old wording to the new circumstances, and they had found that easier to apply than the new ones.

As I say, I was not responsible for detailed application, but I was responsible for policy, if there was a change of policy, I really would have expected to have been informed.

I think, had there been a change of policy, which was what I would say was a definitive change of policy, I wonder why it was necessary to ask later the Foreign Secretary, or was it that the ceasefire had held for so much longer really now to revise the Guidelines and, when they came to a real revision of the Guidelines, that is a much bigger revision of the Guidelines, I notice that, not at the time, I noticed since I have seen the documents, which I had not seen, that they were still referring to the old 1985 Guidelines.

Q: That may or may not

A: In all of those papers it is not clear.

Q: One of the difficulties is that the references that you are now speaking again of, the Iraq Note in July 1990, the references there to the 1985 Guidelines and indeed the references to the 1985, the original Guidelines, in [end p83] a number of answers to Parliamentary questions, which we will have to invite your attention in a moment, may or may not have been accurate. Of course, if that was accurate, then that is the end of the question, but, when one looks at the history, one has to ask whether those references were, in fact, accurate, and that is why it is necessary to go over the history

A: Or whether they were using this new one on a trial basis, but not, in fact, taking the other one quite out of circulation, but regarding it as the same point, to be used, applied to different circumstances.

Again, I think one has to remember that, all through this time, there was no question whatsoever of supplying lethal equipment to either side. Other people were doing that.

Q: That is true, but

A: That remained absolutely unchanged.

Q: The particular problem that indeed gave rise to the institution of this Inquiry in the first place, related to what had been sometimes called dual-use goods. These are not lethal weapons. These are things which can be used for military purposes, or for civil purposes, depending on what the owner of them wants to use them for.

Those would be covered, if covered at all, not by [end p84] the lethal weapon Guideline, but by Guideline (iii). That is why we are having to concentrate on Guideline (iii)?

A: Do not you think, my Lord, that we have discussed it all and got all of the information into the arena, that I was not informed, in fact. Of course it would have been easier if I had been informed of any change. I assume that the reason that they did not inform me was that they thought there was not a change of policy, but a change of circumstances to which the policy applied.

That may not be a decision that other people, looking at it reach.

Q: Would that have been a sufficient reason not to inform you? I would have thought that the question of whether you should be informed or not would depend on the substance of the decision, and not on some play with words as to whether it was a change in policy or a change in interpretation, or whatever. If the substance of the decision was such as to bring it within the category of relevant decisions, referred to in your letter, would that not warrant your being informed?

A: We are back to words, because I would say – I would think that they would have thought that the substance of the decision was not changed. The circumstances to which it applied, namely the circumstances of an uneasy [end p85] peace, the ceasefire, or the end of the war, between Iraq and Iran changed that.

Q: References to a more liberal policy does not fit easily with the concept of there being no change in substance.

A: “Liberal” is not a word I would have adopted, but they have introduced that word.

Q: That is what has been used.

A: I accept that, in fact. Indeed I could not deny it, that they have used that, and, therefore, there are various versions of what they thought they were, in fact, doing.

Q: They were the ones who were “hands on” in relation to the decisions that were being taken?

MISS BAXENDALE: I think we were talking about the trial period and what happened in practice. Do not put away FCO 13/1, but if one takes out MOD 24/1, page 299, I think this may have been one of the documents you were referring to about the trial basis.

A: No, I would not have seen this.

Q: I am not suggesting you would have seen this.

A: Goodness me.

Q: If you look at it, it is a document that was sent to the MOD Working Group. I think on page 11 of the questionnaire we drew it to your attention. It says about the Guidelines:

[end p86]

“Sent to the MOD Working Group. There is no intention to publish revised guidelines yet. We have been asked, however, to be more flexible and to use the revised Guidelines in Annex A on a trial basis.”

If you go to page 303, you find Annex A. That sets out the revised wording that we have already seen and helpfully it has been underlined, with the words “new words sidelined thus”?

A: Yes, they have changed a very few words. One is “direct” and the other is “the circumstances to which it applies”.

Q: What about the word “offensive”?

A: “Offensive operations in breach of the ceasefire.”

Q: It is the same wording we have already looked at and we have already discussed. It is the new wording, and they are being told to use the revised Guidelines on a trial basis.

In fact, the evidence has come out that it is starting to be used by the IDC in January and then here the MOD Working Group in February, and it continues being used for Iraq until March 1990. We are going to come to the part where it stops being on a trial basis, but, so far as the MOD Working Group is concerned, and the others are concerned, the wording they used is this wording, that we see on page 383.

[end p87]

A: I do not think there is anything I can usefully add.

Q: I was asking about the trial basis.

A: There are multiple documents which I have never seen and thank goodness I was not deluged with them at the time. It would have been very much better if I had had a summary, perhaps, of what was proposed come to me.

Q: That sets out what the MOD Working Group and the IDC were doing. Then, if we carry on with the correspondence, very quickly –

LORD JUSTICE SCOTT: Can I pick up that comment, “it would have been better if a summary of what was proposed had come to me” –

A: It is quite clear now, my Lord, that people, in my understanding, regarded it as not a change of substance, but a change of circumstances, and I think, from the look of that it is as if they are saying “Guidelines” and not fully legal clauses in either an Act of Parliament or a schedule, that they therefore thought it was not worth bothering me with, that the circumstances of the ceasefire – the changed circumstances was the end of the war, whereas previously there had been a conflict.

Q: What do you think? Do you think it was worth bothering you with?

A: I do not know if they were documents worth bothering me [end p88] with. There were certain things I preferred to know. If it was actually in operation, if it was actually in operation I would have preferred to have known about it and I think, had I had to answer a Parliamentary Question specifically related to it, it would have probably come up.

MISS BAXENDALE: We are going to come to the Parliamentary questions, but I think it was in operation. I was trying to show you with those documents that I just referred you to.

A: They were not on a trial basis, but on a permanent basis.

Q: Yes, it starts as a trial basis and that is why I was trying to show you. It starts on a trial basis, but it then continues. It is then accepted as – even when it is on the trial basis, when they use both the old Guidelines and the new Guidelines, the decisions are taken on the basis of the new, the revised – the wording in the new (iii).

A: I know it is for you to ask questions and for me to answer them, but was that so in every case?

Q: Yes.

A: You have been through every case?

Q: All the documents we have seen. The IDC and the MOD Working Group say so, so I think we just take it from [end p89] the evidence from those who operated the system, and they have all given evidence that that was the basis they were working from. We can only accept what they say.

A: Can I just, my Lord, have a look at the Iraqi note? I have not seen it until now.

LORD JUSTICE SCOTT: Lady Thatcher, we are coming to it. We are certainly not going to let the occasion pass without drawing your attention back to it.

A: Nevertheless, my Lord, I think there is something which is relevant here. This was a note prepared for a real change in Guidelines, if I might use it for this purpose, so we know what we are talking about.

MISS BAXENDALE: If you want to go to the Iraq Note, it is FCO 62/11, 2348?

A: I have it. It is paragraph 5 of the Iraq Note.

“Policy remains essentially to prevent the sale of equipment to either side”, and that is the test they use, “which could significantly enhance their capability to resume the conflict.”

LORD JUSTICE SCOTT: That is what they say after months and months, after applying the revised wording we have been looking at?

A: Yes, indeed and that is what made me gently query, if it is within my terms of reference to do so, whether the [end p90] test that you say was always applied was the one that was, because, if so, there are quite a number of people who do not seem to be applying that.

Q: I agree with that.

A: May we move on?

MISS BAXENDALE: Shall we carry on with the correspondence? If you could go to MOD 21, page 93.

A: If it is relevant, yes, certainly. Can I help any more?

Q: Yes, certainly, we have lots more. MOD 21, page 93.

A: This is another Private Secretary to a Junior Minister.

Q: Yes. We are still carrying on with the correspondence between Mr Clark, Lord Trefgarne and Mr Waldegrave. I think this is the end of references of the matter coming to you. It refers back to a letter we were just looking at of 7th February:

“I confirm your understanding of the agreements reached by officials on the use of the revised wording, tabled at the December meeting, at the proposed form of response to questions on the Government's policy on defence sales Guidelines. We are content on both issues, and are pleased with your agreement to implement a more liberal policy, without any public announcement.

Mr Clark is willing for the matter to proceed as you suggest, when we receive MOD agreement. Perhaps [end p91] where he could liaise over the timing of notifications to our respective Secretaries of State and the Prime Minister.”

As I say, I think this is the end of references of the matter coming to you. You can see at this stage again Mr Clark 's Private Secretary is referring to this being a more liberal policy. The agreement is to use the revised wording. The agreement is this should be done without any public announcement, and the suggestion is that this should be brought before you, yes?

A: That is as a matter of fact what the letter says, yes.

Q: Then, if we go on to Mr Waldegrave's reply. It is FCO 13/1, page 216. By this time we are now in March 1989.

A: This is 28th March.

Q: Yes. What has happened is there has been a downturn in the relationship with Iran. There has been the Fatwah on Salman Rushdie, and so the position has now altered in respect of Iran.

In this letter from Mr Waldegrave, he says:

“As a result of the ceasefire, we agreed in February to interpret the export Guidelines more flexibly, so as to refuse orders”, and then he is setting out the exact words we have seen at page 163. That is the revised wording.

A: Yes.

[end p92]

Q: “I see no reason to change this flexible approach of applications to export defence related equipment for Iraq.”

Then over the page, what he is proposing at 217:

“I therefore propose we should now revert to the stricter implementation of the present Guidelines, as applied to Iran, along the lines which we operated before Iran accepted the Resolution 598”?

A: I am sorry, I have lost you there.

Q: It is over the page. I am sorry, I jumped. He sets out on the rest of 216 that something has to be done about Iran?

A: Yes, there are quite a lot of points in this letter. It really is relating to the circumstances to which the Guidelines are employed.

“We do, however, need to take into account, in interpreting the guidelines as they apply to Iran, new factors created by recent events. The security risk posed by Iran must now be greater than before, for example by possible renegade IRGC actions against the Armilla in the Gulf.”

You will recall that at this time we had been having great trouble with some informal mine laying in the Gulf by Iran, previously or at some other time, Iraq had been troublesome with the shipping in the Gulf. It [end p93] was a great danger to the Armilla Patrol. It was also a great danger not only to our ships, but to other ships there, and I think it was about this time that we had to send four mine sweepers around to the Gulf. So they really were the – it should have been actually before this.

Q: We have seen in the documents

A: They had previously sent four mine sweepers to the Gulf.

Q: The relationship with Iran has deteriorated, and the proposal is, you get it on the top of the next page, 217, the proposal is –

A: Possible renewal, I think they are talking about there. It has been over the period towards the end of the war that we had the attacking of shipping in the Gulf, and we had had to send round mine sweepers. I am sorry, I am getting a little bit puzzled by the dating of some of these letters.

You went over the page then?

Q: Yes. The passage I am drawing to your attention is the –

A: “Stricter implementation of the present Guidelines as applied to Iran before Iran accepted…”

LORD JUSTICE SCOTT: That is before the ceasefire, that is to say?

A: Indeed, yes. Whichever way we look at it, it seems [end p94] that, if there is a certain interchange between the two, which was, in fact, being operated, would that be a reasonable –

Q: Between the two?

A: Between the two sets of Guidelines, not as the circumstances, because one referred to enhancement of the ability of one side or the other in the conflict, and the other referred to the circumstances of a ceasefire, but this was not an easy ceasefire, and it does seem as if sometimes the language of one comes up, sometimes the language of another comes up. Sometimes it is flexible, sometimes it is liberal and sometimes it appears that they are either operating both together or choosing which would be more appropriate. I, again, have not seen this letter.

MISS BAXENDALE: What is being suggested is that for Iraq the revised wording, what is being referred to on page 163 as the revised wording, should be used, but for Iran, there should be a reversion to the stricter implementation of the Guidelines, eg you go back to the original (iii)?

A: That was rather better put than I was saying it.

Q: That is what is being suggested here?

A: Because of circumstances, Miss Baxendale, because of circumstances in Iran. Circumstances had to be taken [end p95] into account. Had, in fact, Iraq done these selfsame things, they would have had the same applied to them. The circumstances we had to take into account were not a mirror image of one to another, from Iraq to Iran. They differed from time to time, and, of course, we had to take the different circumstances into account and so it does not seem to me at all strange that for Iran, because the circumstances to which the Guidelines had to be applied were different, because of their action, we should take that into account and that would be the flexibility.

Q: If you could go to MOD 21, page 133, there is the next letter.

A: 13th April?

Q: I think that is the wrong bundle you have there. It is MOD 21. I think you can actually put away FCO 13/1. We are very nearly at the end of this correspondence.

A: Good. I am sure you are as pleased as I am. You have probably been through it many times and to me it is new.

Q: It is engraved on my heart. MOD 21, 133, 27th April 1989. It is from Mr Waldegrave to Mr Clark, and this was finalising the agreement. There has been a meeting between the Ministers, and, if you look at the bottom of the page, 133, I am just wondering if I needed to draw [end p96] to your attention – he refers in the middle of the first main paragraph:

“For the reasons I have described, the fragility of the ceasefire, while no progress is made in negotiations and the importance of not supplying the kind of offensive equipment which might enable or induce either side to renew hostilities, we nevertheless concluded it was not right, for the present, to withdraw the Guidelines and it was preferable not to have to announce publicly any change in them.”

And then down the page:

“Against this background, we agreed we should continue to interpret the Guidelines more flexibly in respect of Iraq, as we had done in practice since the end of last year, but we should revert to a stricter interpretation for Iran, along lines which operated before the ceasefire.”

Then, over the page: “The form of words we agreed to use, if we are now pressed in Parliament over the Guidelines was as follows”, and then he sets out the wording that we have seen before.

This letter is not sent to you. The effect of that letter is summarised, if you go over the page, to 137, to a document dated 15th June 1989. It is a document that was sent to the MOD Working Group, and [end p97] reflects the evidence that we have had from the members of that and the IDC. It says:

“At the last meeting of the Working Group I agreed to confirm in writing the interpretation of the Guidelines, which the Ministers have agreed we should now use when considering ELAs and AWPs for Iran and Iraq. For both countries, the normal security considerations should continue to apply. In addition, the existing Guidelines in respect of lethal equipment will still apply”, that is Guideline (i). “For non-lethal equipment, the following will apply: Iran: The existing Guidelines strictly interpreted in the way they were being used at the height of the conflict”, and then there is a reference to “there should not be a blanket embargo against the Iranian Navy, the IRGC”.

“We would stop anything we believed to be a direct threat to the Armilla Patrol.”

Then (b) “Iraq: We should refuse applications only if they would be of direct and significant assistance in the conduct of offensive operations in breach of the ceasefire. The above information should not be divulged to anyone outside the Working Group, particularly countries or companies.”

That summarises what happens in respect of the two countries. Do you have that document, do you see at [end p98] 137? That is setting out different criteria for the two countries, is it not?

A: Yes, but because of different circumstances.

Q: It is different criteria.

A: There were times when Iran was doing things which at the time Iraq was not, and the circumstances were different. We simply could not act as if circumstances were the same for the two, when, in fact, they were different. I have not got the full background of this.

Q: It is quite clear that the circumstances for the two are different, but the question I asked you is: that sets out different rules for the two countries?

A: Because there are different circumstances.

Q: Do you agree that these are different rules for the two countries?

A: I accept that that letter says that these are different – I cannot do anything else; it is on the face of it. That is that.

What I am suggesting is that there were very, very different circumstances which applied from time to time. Iran did things which were appalling, and then Iraq did. They were different, but we had to take the different circumstances into account in the application of the Guidelines.

Again, the question however arises, whether these [end p99] are fundamentally different Guidelines or where there are differences caused by circumstance. Here it looks as though they are fundamentally different Guidelines, but caused by the circumstance in Iran at that time. There were times when we had to be quite tough with Iraq.

LORD JUSTICE SCOTT: Looking at this letter, which is very much a letter setting out the rules for practical implementation, the situation that has been

A: This is a letter from an official to other officials?

LORD JUSTICE SCOTT: That is right.

MISS BAXENDALE: it is to the Working Group.

LORD JUSTICE SCOTT: It summarises the position that had by this time been reached in regard to the

A: It is an interpretation which Ministers had agreed?

Q: That is right, and then it sets everything out.

Was this something that you would have wished to have had put before you in summary form, so that you would have known, consistently with what you had asked to be kept informed about in your 2nd September letter, what was being done in relation to the two countries?

A: This is just about nearly a year after the end of the war. I do not know, I cannot say with hindsight, what I would have said.

I observed that they are applying the Guidelines [end p100] more strictly on one side than the other. I would say in ordinary parlance that that difference arises from the change of circumstances in Iran, for example one of the things that was obvious what they were doing, the Fatwah on Mr Salman Rushdie. There were other circumstances, which from time to time gave rise to a stricter application of the Guidelines.

There were times when we were very worried about what Iraq was doing. On this occasion it was Iran. I do not have anything similar for when Iraq was being particularly –

LORD JUSTICE SCOTT: We have now got to the summer of 1989?

A: This is June 1989.

Q: Yes, I think that is the summer?

A: High summer.

Q: The high summer of 1989. Had you had any notion of the type of policy that was in place in relation to Iraq at this time? Had there been discussions? Had it been mentioned to you by your Private Secretary?

A: No, no, it only – I just refer, my Lord, to what I said earlier, that, since I have been coming here. I have seen documents I never saw. As a matter of fact I had not seen these before I came here. I had seen some, which, as I referred to in my earlier observations, made me think that some of the old Guidelines, the 1985 [end p101] Guidelines, were still being applied, and that I think the thing which alerted me to that was when I read, just before I came here, or knew that I was going to come here, the Iraqi note.

I now find what I had said to you, that sometimes the old Guidelines were being applied, and you find here a specific difference. I would maintain that that specific difference arose from circumstances in connection with Iran, that we could not ignore in carrying out this second limb of the policy, the first limb still remaining, that at no stage was lethal equipment supplied to either side.

MISS BAXENDALE: We have been through the fact that you agree that page 137 is setting out different rules for the two countries. Was that consistent with an impartial approach to the two countries?

A: The two countries were different. I do not think you can say that you can have the same circumstantial approach to different things, and this I think is what in administration one has to get over the whole time.

If you had different circumstances in different countries, and there was quite a difference, it seems to me that you should take those differences into account. It seems to me, further, that it would be reprehensible if you did not. That is now very practical for use in [end p102] an application of an administrative application of the Guidelines.

Q: I would like to go to an answer that you gave to a Parliamentary question from Harry Cohen on 21st April 1989. Could we go to DTI 32, page 85? The question was 21st April 1989:

“To ask the Prime Minister whether her Majesty's Government propose to change their current policy of prohibiting the export to Iraq of any weapon which could enhance its offensive capability or will agree to granting export licences for the supplied weaponry to Iraq to accommodate the United Kingdom exhibitors at the Baghdad Fair if she will make a statement.”

Then your reply was:

“The Government have not changed their policy on defence sales to Iraq. Application for export licences continue to be considered on a case-by-case basis according to the Guidelines as announced in the House by the Foreign Secretary on 29th October 1985.”

By that time, by 21st April 1989, the wording that was being used for Guideline (iii) was the new wording in respect of Iraq, not the original wording.

In those circumstances, do you think this answer is correct?

A: This was answered on the belief that the old policy [end p103] Guidelines were still in operation, and in the letter to which you have directed me, they were partly in operation with regard to one but not with regard to the other.

Q: In regard to one?

A: You asked me about the current policy of sale to Iraq.

Q: We are only talking about Iraq in this.

A: “Any weapon which could enhance.” The question he asked me is: “Whether Her Majesty's Government propose to change her current policy of prohibiting the export to Iraq of any weapon which could enhance its offensive capability.”

It is a mixed question, is it not?

LORD JUSTICE SCOTT: It is a mixed answer.

A: Yes, indeed. It was a mixed question and it may require a mixed answer.

Q: If the first sentence of the answer had said:

“The Government have not changed their policy of sales of weapons to Iraq”, then that would have meant the first part of the question and would have been acceptable. It is the shift from weapons in the question to “defence sales” in the answer. Is the problem.

A: It would, I am afraid, my Lord, come back to the same point we have been concerned about for quite a long [end p104] time, was it a change in policy, to which my advisers would say no. It was a change in circumstance and this, I think, is rather in keeping with the Iraqi note that any change had not been a change of policy. It had been a change of wording, necessitated by the change of circumstances.

MISS BAXENDALE: That answer cannot be sufficient, because, by now, by April 1989, you have two systems operating. You have the original wording, which is being used for Iran, even though there is no longer a battle. The fighting has ceased, but the strict, original wording, amended, has to be taken into account, because the conflict is no longer in existence, is being used for Iran. However, a different wording, a more liberal wording, a more flexible wording, whatever you want to call it, but a quite different sets of words, are being used in respect of Iraq. So it is not just the circumstances of the ceasefire, because that would apply as much to Iran as to Iraq?

A: No, the circumstances of the ceasefire, certainly, but the circumstances prevailing in the two countries, after the ceasefire, were different, as we have just indicated, and we had to take those circumstances of Iran into account. Those circumstances did not have a mirror image in Iraq. There was no such thing as [end p105] Mr Rushdie, as a Fatwah, which is a direction to kill, and therefore we could not treat different countries the same, and with Iraq the contention would be that the change in the Guidelines was a change not of substance. It was not a change of substance, it was a change of wording to take into account the different circumstances.

LORD JUSTICE SCOTT: On the footing that that is what it was, that it was a change of wording, then it was a change of wording of the Guideline that was announced on 29th October 1985?

A: What I am saying is a change in the Guidelines was assumed to be completely technical. I cannot myself – I had not got myself a copy of the new Guidelines. I still think the reason why I did not have them was that the copy would have been – I have them.

MISS BAXENDALE: There is one version in MOD 21, page 33, which is quite useful to have open.

A: I have not got all of these things in front of me at the time.

Q: If we could have MOD 21, page 63. Why not just keep that bundle out and open, because it is quite easy to keep it there?

A: It is headed “Proposed Revision”. As far as I am concerned –

[end p106]

Q: This is the wording that was then used. I am giving that to you as an example. It appears on many pages. That is one that comes to my mind. That is the wording that is then used?

A: Yes, it is, the difference between “significantly enhance the capability of either side to prolong or exacerbate the conflict” and “of direct and significant assistance to either country in the conduct of offensive operations in breach of the ceasefire”. There would have to be offensive operations, of course, for the ceasefire to be breached.

I think we are still at odds, and perhaps taking a slightly different view of the significance of these changes, whether it was a technical one, reflecting the fact that the Gulf War had ended, which we had to do, and the difference between “direct and significant assistance to either country” is not that much different from “significantly enhance the capability of either side”.

LORD JUSTICE SCOTT: Lady Thatcher, we have shown you a number of documents relating to the so-called revised Guidelines that you would not have seen at the time, but you have seen them now. Having seen them now, and they were in existence at the time, but you had not seen them, having seen them now, and looking at the question [end p107] and looking at the answer, are you satisfied with that answer?

A: I would prefer to have a longer time to consider it and to consider it with my advisers before going against what I understood – what they understood the position to be and I am sure my Lordship understands that.

Q: The question was asked in the questionnaire regarding this particular answer.

A: This particular answer was given to what I believed to be correct. The Government have not change their policy on defence sales to Iraq. “Application for export licences continue to be considered on defence sales.”

What he was asking, “prohibiting the export to Iraq of any weapon which could enhance its defensive capability”. Had we said, “the Government has not change their policy on weapons to Iraq”, it would have been all right.

Q: That is all.

A: It would have been perfectly all right, because we have not change our policy on weapons.

Q: On lethal weapons?

A: Lethal weapons, so we did not export lethal weapons throughout. So we had not changed our policy on that, and it became in –

Q: That is why I was asking now if you were happy with this [end p108] answer?

A: Yes, but you see he asked about weapons and had we – ironically enough, we answered his question, but changed the word “weapons” to “defence sales”. He is asking about weapons, and the wording, for some reason, was changed to “defence sales”. We still thought the policy on defence sales was the same and application on a case-by-case basis, which was correct, and, “in the light of developments in the peace negotiations with Iran”, those are the different circumstances to which I –

MISS BAXENDALE: You have missed out the wording “according to the Guidelines as announced by the Foreign Secretary”.

A: The question was asking me about: “Whether Her Majesty's Government proposed to change their current policy of prohibiting export to Iran or Iraq of any weapon”.

On weapons, we were not proposing to change at all, whether it would enhance the capability or not. On weapons, they had been precluded, and the new Guideline was still: “We should maintain our consistent refusal to supply any lethal equipment to either side”. That was throughout. We did not supply lethal equipment and a weapon, we would say, was lethal equipment.

Now, I am afraid, in the answer, we were [end p109] attempting to answer his question. Had we, in fact, said: “That the Government had not changed their policy on weapons sales, applications for export licences continued to be”, and then gone on: “Considered on a case-by-case basis”, which actually applies to other sales, it would have been correct. So we were answering a question which was not the identical one that he asked, but we thought we were answering his question, which is about weapons.

Q: What do you say about the reference to: “According to the Guidelines as announced by the Foreign Secretary”, because those ELAs are now –

A: You see, I sill believe that some of those were in operation, which is again the discussion we have had.

Q: I think that is Iran.

A: The new Guidelines is a fact I did not know about, that they were still being used on a trial basis.

Q: By this stage, no. I think, by this stage, they are not being used on a trial basis. The original Guidelines are being used in relation to Iran.

A: I still refer you to the note which they did for the change of Guidelines meeting in 1990, which still makes it quite clear, from the beginning of paragraph 5, which I read out, that it indicates that they seem to think they were also still on the – was it 1984 or 1985 [end p110] Guidelines? It is the same point in another context, I think.

Q: This was an answer given in Parliament. What I would like to do is look at page 3 of your statement, paragraph 4. You have referred to the fact that it was unusual that the Guidelines were announced. Then you say:

“In particular, the 1985 Guidelines were written to apply to the situation created by the Iran/Iraq war, which ended in 1988. So with the ceasefire of that year, there was a changed situation, though the policy was not changed in substance. Under the policy, Britain did not sell lethal weapons to Iran or Iraq, whereas many other countries did. Parliament only needed to be informed if the 1985 Guidelines, which had been announced to them, were suspended or removed, or if we changed policy, for instance by deciding to sell lethal equipment to either side.”

I am going to come on to the correspondence, but dealing with that point, I understand what you are saying. You are saying Parliament needs to be informed if there is a change in the Guidelines, and you pick up Guideline (i), which is the one relating to lethal equipment?

A: Having already dealt with the previous one, by saying, [end p111] “In particular, the 1985 Guidelines were written to apply to the situation created by the Iran/Iraq war, which ended in 1988”, so the ceasefire of that year, the changed situation, the policy was not changed in substance. This is the discussion we have been having for a long time, and then you go on to say, all right, the policy was not changed in substance, and lethal equipment remained throughout.

So you have two things. We did not sell lethal equipment throughout. That was not changed in any way, and it is still the contention that, with the ceasefire of that year, the war ended, there was a changed situation, though the policy was not changed in substance, and it comes down to that particular set of wording, which we have looked at and read out several times, and which I think is a matter for his Lordship to decide when we have been through all of the documents, which we have not yet. It would seem it is not quite clear.

Q: We have seen the references in Mr Clark's letter and Mr Waldegrave's letters to referring to it being a more liberal policy. Do you remember we went through those letters?

A: Yes, and I am afraid I made it quite clear that may have been their adopting of the word. It was not mine. I [end p112] have stuck to “flexibility” which was the one the Foreign Secretary used in his original reply, and I do not think it helps to change words. I accept that they did. What is the difference might be quite an esoteric argument.

Q: Certainly. They refer to the fact, as I say, of a more liberal policy, and, in practice, the wording that has been used for Iraq is are the wording that we have looked at, the wording with the changes in it.

Do you think that the fact that a different wording is being used should have been announced to Parliament?

A: As I have indicated, they did not think it was a change of substance. They thought it was a technical change, due to the ceasefire, and also

Q: Why do you say that? I do not understand why you say they thought it was a technical change caused by the ceasefire,?

A: I have read the change in words out several times.

Q: Why do you say the Ministers thought that?

A: Because it was my belief that the changes would have come to me, had they thought it was a change in substance.

Q: We have seen they did think the change had come to you. We have gone through the correspondence.

[end p113]

A: But it did not come to me, and normally it would come. It would come, as you have seen, and I would look at it, and there would possibly be a note on top of it, and I would either say “yes” or “no” or send it back, or send it up to OD.

Q: I understand it did not come to you, but we have been through the correspondence, and the Ministers clearly thought, when they were talking first about it, up until 1989, they thought it should come to you, and that is the same wording that eventually is used.

What I do not understand is why you say the Minister thought that it should not be announced because it was just a technical matter, because the letters that we have looked at show they thought it should not be announced because it was going to cause trouble. I am trying to think of the exact wording of Mr Clark 's letter. It was bound to cause upset with someone. Do you remember, we looked at that letter, where he was saying: “Do not let us announce this publicly”?

A: Yes, these are Guidelines. They are not rigid laws, although the putting of a particular classification under a statutory instrument is a law. However, the Guidelines as to how to interpret that are not strict, legislative Guidelines, and the ceasefire of that year changed the situation, though the policy, I could still [end p114] argue, was not changed in substance. Then you have to decide if it was a change of substance. We have been over the words again and again.

Q: I was just asking you about why you said the Ministers had decided that this was because it was a technical matter, that it did not need to be announced.

A: I am afraid, I think, it is my interpretation, and on advice to me, that this was not a change of substance, and that was why it did not come to me. I would again refer you to the Iraqi note. I did not seem to be the only person who was receiving that advice.

LORD JUSTICE SCOTT: Lady Thatcher, can I come back to the question that Miss Baxendale put? She said do you think that the different wording that we have seen in Guideline (iii), the substance of the change, whatever substance there was – and it may not have been very much – should have been announced to Parliament? I am not speaking of how it appeared to you at the time. I am asking you about it now. You have seen the document. You have seen the change in the wording. You have seen the intention that lay behind the change in the wording. Do you think that that was the sort of change, never mind whether it is a change of policy, but the sort of change – there was a change of the sort undoubtedly – that ought to have been announced to [end p115] Parliament?

A: I would not like to answer that without considering with Ministers. I obviously would have preferred to have been informed of even a change in the wording. I was not. Whether it was still significant enough, in view of the fact that they seemed to be running both Guidelines at the same time, and if you thought there was not much difference between the Guidelines, other than those to the circumstances to which the Guidelines applied, it was not necessary. Whether it was advisable was another thing. I can only say it would have caused me a great deal less trouble had it been announced.

Q: One of the problems I have to try to make up my mind about is what effect the public knowledge there was about nature of the Iraqi regime, in particular what had been happening to the Kurds, played in the decision not to announce the view. It seems to come across that, if a policy of a more relaxed approach to Iraq, which is, after all, the effect of all this, had been publicly announced, there would have been some degree of public outcry against it because of revulsion at what Iraq was doing to the Kurds. Is that a matter which could properly play any part in a decision whether or not to make an announcement to Parliament?

A: Anything to do with the gassing of the Kurds – as you [end p116] see what happened when the Hawk decision came up to OD, what decided us not to do it, although it could have been within the Guidelines to do it, was we simply could not supply that kind of weapon, the Hawk trainer, to a Government that did the gassing of the Kurds.

Q: I see that.

A: If I might say so, the gassing of the Kurds acted against the country, and then one says is it really a very, very different Guideline in substance? However, when it came to policy on big orders, I regarded the Hawk trainer, as it came up to me, clearly because there was a difference of view – it was not a thing which came up to Cabinet, Overseas and Defence – there was no difficulty with it at all. To me it seemed absolutely clear-cut. There was no way in which we could supply a Hawk trainer to them, no way.

So, once we knew the full extent, or knew that gassing had been used for the Kurds, there was just no way we could permit it. How far we knew at this stage, how far it had been confirmed, I do not know. We still come back, my Lord, to how much difference you think there is between the two Guidelines. I would still not think that there was that much difference, not much difference or any difference in substance.

Q: Does it come to this, that you do not think there was [end p117][end p118] enough difference to warrant an announcement in Parliament, regardless of any additional point there might or might not have been regarding the Kurds?

A: I did not have the option of announcing it to Parliament, because I did not know about it, so it becomes a bit hypothetical.

Q: An Inquiry of this sort is always looking back. It is the nature of it.

A: Yes, indeed. It does make it a hindsight thing, which is very, very, very difficult. It does also make it acutely difficult for me, because I did not have anything like this before me. I had Ministers, and they were responsible for the administration.

Q: If you had had summaries of the sort that you said you might have liked to have had, if those summaries of the new line that was being adopted had been put before you, what would your opinion have been regarding an announcement to Parliament?

A: It looks to me as if both lines were still being continued.

Q: Do you think Parliament should have been told?

A: In general, but I do not make a particular point on this case, because it is hindsight and hypothetical. In general, I find it easier and better to make announcements to Parliament.

[end p119]

MISS BAXENDALE: Could I go on asking you one or two questions, while we are talking about answers to Parliament?

A: You can go on straight through lunch, if you wish, so we can complete the work we have to do.

Q: Only for a few minutes, while we are dealing with it.

LORD JUSTICE SCOTT: It will not be quite as bad as that.

MISS BAXENDALE: You say in general it is easier and better to make announcements to Parliament. Do you think it is important that Members of Parliament are given accurate answers?

A: I think, yes, it is. I think what will happen is we will get a colossal cross-examination on each word. What does each word mean? Would you then try to interpret each word? That would be the use of the basis of a dozen more things. To some extent, we are already in that country, what does each word mean, and we would take its general meaning as a Guideline, not the kind of, may I say, constructual sums we do on a tax case. We just do not. It was not possible to do this thing by legislation. You were constantly being overtaken, as indeed the tax law is, by a set of circumstances.

LORD JUSTICE SCOTT: These days we have purposive interpretations?

A: But you even have concessions, I think, sometimes, [end p120] published.

MISS BAXENDALE: So you agree that it is important that Members of Parliament are given accurate answers, and also it is important they are not given misleading answers?

A: We try to be accurate. As I have indicated, what you have there is actually an answer, I think, to the question he had asked, which was about weapons.

Q: It is at page 85. I was just trying to ask you some general questions about –

A: We actually got an answer to Mr Cohen 's question. Mr Cohen asked about the change in current policy of prohibiting the export of any weapon that could have enhanced its defensive capability. There have been no changes with regard to weapons, so we have, in fact, answered his question, which we thought we were answering. “The Government have not changed their policy”, we put, “on defence sales.”

The question is whether he would interpret that in the way in which he asked the question, defence sales as being only weapons. If he did, it was right. Then we say “applications for exports were considered on a case-by-case basis” is right, according to the Guidelines in 1985. It looks to me as if some of the people thought those were still in operation, and they [end p121] were still in practice, being used. I do not think I can go any further.

LORD JUSTICE SCOTT: Well then, thank you. May we adjourn now for lunch, and I suggest, if it is convenient, that we start again at 2.15.

(1.10)

(Luncheon adjournment).

(2.15).

MISS BAXENDALE: Lady Thatcher, I would like to carry on with one or two general questions about answers to Parliamentary questions. In the course of evidence that has been given to this Inquiry, there has been reference to half answers and, if I could refer you to that passage, it is Mr Gore-Booth 's evidence, which was Day 21, pages 46 to 47.

A: It is a list of questions.

Q: This is a transcript of Mr Gore-Booth 's evidence, and we were asking him questions about Parliamentary questions and how they should be answered, and, if you start at the bottom of page 45, do you see the page is divided into four? It is something wonderful called Minu-Script, but if you look at page 45, in the top left-hand corner, I am asking the question should a question be fully answered. “The answer should be sufficiently full to give a true meaning”, and then the [end p122] answer was from Mr Gore-Booth:

“The question should be answered so as to give the maximum degree of satisfaction possible to the questioner”.

Then, if you go on down the page, I asked at line 9:

“Question: Should the answers be accurate?

Answer: Of course.

Question: And they should not be half the picture?

Answer: They might be half the picture. You said should they be accurate, and I said yes, they should.

Question: Do you think that half the picture is accurate?

Answer: Of course half a picture can be accurate.”

Then, if you go on to the top of the next page, 47, so we are now on the right-hand column, Mr Gore-Booth was saying:

“That is very much, Sir Richard, a question for Ministers in deciding how they wish to answer. It is very much for a Minister to decide how to answer a Parliamentary question and then the civil servants draft it. So the extent to which an answer should be full, half full, or empty is very much a ministerial [end p123] decision.”

We have had that evidence and we have also had evidence from Mr Beston, and it was attached to the questionnaire, the document you received on 26th November. Do you remember, we sent you a transcript of passages from Mr Beston 's evidence? It was the one with Mr Cohen 's question. The letter is dated 26th November 1993, and it enclosed a passage from Mr Beston 's evidence. Do you have it?

A: I think so.

Q: If not, there is another copy just behind you.

If you go to page 95 of the transcript – we sent you several pages of his evidence – but if you go to page 95, do you see at the top of page 95, Mr Beston said:

“I think that the way in which questions are answered in Parliament tends to be something of an art form, rather than a means of communication.”

Sir Richard asked him to expand on that and he said:

“Not all questions are necessarily answered fully, or rather, put it another way, information is not necessarily volunteered which goes beyond the strict limits of the question.”

Then he was asked whether there was a recognised [end p124] approach to these matters, and:

“Question: How does it come about that the answers given in response to questions are almost an art form, as you have said, not designed to give complete information to the questioner?

Answer: I presume it is a reflection of political intervention in the department.

Question: And desire not to give an angle which might be made the subject of some political attack?

Answer: Quite possibly, yes.”

I want to ask you about those answers. We have already seen paragraph 27 of the Procedure for Ministers manual. That is the passage that was referred to in Sir Robert Armstrong 's note. Do you think that it is important that Members of Parliament are given as much information as possible, rather than what is being set out in these answers, which are giving as little information as possible?

A: You try to answer the question. It may have been put in a form which is not strictly accurate, or the vocabulary is not strictly accurate. You try to answer the question. If you do not, you will get half a dozen other questions, trying to elucidate. You try to do that first, because you would in any event and, secondly, because, if you do not, you will get extra [end p125] questions.

I have answered a question as a Parliamentary Secretary and always tried to give full answers.

When you are doing oral answers, you do not want to give them too fully, or you will be accused of making a statement and using question time for the wrong purpose – of making a statement – and that is wrong.

So there is a certain restraint. You will then get supplementary questions, so you really have to think on your feet quite quickly and you may not be able to sum up with the relevant vocabulary or the relevant facts. The same applies when you are answering a Cabinet Minister.

When you are answering as a Prime Minister, you will have no notice of the question you are going to be asked. The question on the order paper will be: “Will the Prime Minister please give a list of her official engagements for the day”, and that is all.

You will then be asked: “Will the Prime Minister find time today to”, and whatever the question is. You really then sometimes have to give a whole answer which will say: “Look, this is a particular case, I do not deal with particular cases, you must ask the Minister”; or, if it is a question on policy, you will give the answer which you know and it will be very, very quick.

[end p126]

I have answered 17 or 18 questions within a quarter of an hour.

So it is very difficult. I have never heard of it as an art form. If I give an answer out, it is preferably accurate, and if I could not sum up the facts sufficiently in the time, then I might have had another chance in an extra supplementary if by that time there is more relevant information in your notes.

But, believe you me, it is not an art form. It is used sometimes by the opposition. We all did it when we were in opposition, including myself, to score points, but there is nothing about an art form.

Q: I think one of the witnesses we had drew a distinction between oral questions and written questions, and he was saying that oral questioning is – I think he almost called it guerilla warfare, being lobbed grenades and answering them; but, when you come to written questions, he was saying that, in a written question, the Minister ought to be providing information.

A: Yes, the written question will not always be in the form in which the information comes. We just had an example that there are times when, because the precise vocabulary is not generally known, I would be stumped on a precise way to ask certain questions. You may not get the answer to the question.

[end p127]

There are also, Miss Baxendale, two forms of written questions. You can put down a question for a written answer which has to be answered within 48 hours and then it would probably go round several departments, if it concerns several departments. And then there are others. You might write a letter to a member and say:

“We cannot get the information in this time. We will write to you again and put that down.”

Firstly, you wish to give the accurate information, for obvious reasons. Secondly, it is better for you if you do, unless there is some great intelligence, or some great confidential thing which, you would understand, you may not be able to reveal.

Q: I entirely understand the completely exceptional circumstance, like intelligence, or something that makes giving a full, accurate answer difficult, but I am talking about – I have referred you to the two bits of evidence that we have received, which do not tie in completely with what you have just been saying. I think that the impression we have had from those two bits of evidence is not a picture of Ministers wanting to give as full and accurate information as they can, but rather questions being answered in the shortest way or “half a picture” way, or said as an “art form,” to try to give as little information away as possible.

[end p128]

Do you have any comments on that?

A: In this particular case, it is quite difficult to get the question right, as distinct from your lethal weapons. Defence sales to the normal person would apply to almost everything and then you have an art form within that; and I would most respectfully suggest that, before we come to conclusions about how to ask them, we still look at what Ministers thought the existing Guideline was, as it emerges in later papers.

However, you try to give accurate information. If it is a written answer, there is no reason why you should not make it longer, and so you might try to take a little bit more sometimes. If it is an oral reply, you will be ticked off pretty soon if you give too long an oral reply, because it is taken that they want to get to later questions and therefore you are trying to take up the time on this.

LORD JUSTICE SCOTT: Lady Thatcher, to what extent, if at all – maybe the answer is not at all – would you expect Ministers to check the factual background given to them in the briefing for the answer?

A: You would expect that to be checked, before it came up to you. Again, just may I say, remember, I answered questions on Tuesday and Thursday. On Monday, we would have had a session saying: “What in the world is going [end p129] to come up”, because we did not know; and then, on Monday night, or Tuesday morning, you would try to get the information on questions which you thought might come up.

Q: That would be oral questions?

A: That is oral questions. Otherwise, in 48 hours, you would again try to get the factual information and sometimes they are under enormous pressure of work. They really are under enormous pressure of work.

However, you did try, obviously, to get the facts. You do try obviously to describe them accurately first, as a matter of wishing to do that, and secondly, because, if not, you may have to correct it; and you have seen times when there have had to be corrections, because the answer was not quite what we thought, or it might have given a false impression, without some addendum added to it.

Q: Sometimes if one looks at the background briefing provided to Ministers, for the purposes of answers to questions, a question arises as to whether the background is, having regard to all the documents we have seen, completely accurate, and so on.

Ministers, of course, are responsible for the answers they give, but to what extent – and I come back to the question – if at all do they have to accept [end p130] personal responsibility for the correctness of the background which was the basis of the answer?

A: Well, in the end, Ministers are responsible, obviously. Sometimes, when you get the background information, you send it back, and say “I have not got enough” or “I do not understand what you have told me, because there is so much jargon and I do not understand the jargon of your department.”

Or, alternatively, they may have quite a stock of replies, because they have been accustomed to having replies on a certain thing and they have not quite updated it or quite got the latest revised version of the latest circumstance.

The speed at which we work is unbelievable and, inevitably, not everything will be strictly accurate; and then there are times when you have to write a letter to the person concerned and say what was not quite right, and, if he wishes, he can then put down a question, so that you get that corrected, so that Parliament knows the correction.

There is a tremendous lot of jargon in some of this and other stuff, and either your questioner will not always get the jargon or sometimes in answer, in particular in my case, when you are answering right across the whole sphere of Government, you simply cannot [end p131] sum up the relevant jargon. The jargon is not altogether illuminating anyway, but you try. I am sure that civil servants try. The volume of work and the excellence of the papers which they put up to you as a basis for a decision, I think, is something for which a little praise would not come amiss sometimes.

Q: Bearing in mind the pressures of work that are on everybody, officials and Ministers, would you expect relatively more care to be taken in preparing background to oral questions, to answers to oral questions, than written?

A: You get background to oral and written.

Q: On the footing that the oral are likely to be followed or may be followed by supplementaries?

A: No, first, you have to get the explanations to why it is being done that way. That is the first thing, and then you get a separate section on possible supplementaries. That is an art form, more than an art form. It is a political insight, which really you would expect Ministers to be more adept at, and so you sometimes send it back and say, “Look, I think this might come up”, or, if you have the facts, if you have all the facts, you can ask the question yourself without being told or having other people's imagination on what might come up. It is being very, very fast on your feet, my Lord, [end p132] even faster than in Court, if that is possible, because you have not got a few intelligent people opposite. You have everyone trying to catch you out and sometimes they succeed and sometimes they do not. So it is quite a battle, but that is a PM's question time. I have seen other battles, and the days vary.

MISS BAXENDALE: I was going to move on to Hawk. If you recall, during the summer of 1989, the question was raised whether British Aerospace should be given Government approval to enter into technical discussions with Iraq for the local manufacture of Hawk, and eventually the issues were discussed in OD, under your Chairmanship, on 27th July 1989. What I would like to do is look at the papers surrounding that.

If we go to CO7, document 4, I think it is, 20th July 1989. It is a document of 20th July 1989. Do you have it?

A: I have it with me, yes.

Q: This was the document that was circulated. You would have seen this document, would you not, before the meeting on 27th July?

A: Yes, I would have seen it, because I was presiding over it. Obviously there was some difference as to what policy should be recommended. Therefore, when there is a difference, it comes up to the Overseas Defence Policy [end p133] Committee. Normally I chair that and so I would have seen it and read it or underlined it, et cetera.

Q: I am going to look also at the briefing documents you have, but, first of all, I would like to look at this for a moment. Paragraph 1 is the introduction and then paragraph 2 says:

“UK defence sales to Iran and Iraq are governed by Guidelines announced to the House on 29th October 1985. These lay down that nothing lethal should be sold to either country, nor anything which would significantly enhance their capability to prolong or exacerbate the conflict and by implication resumed conflict. These Guidelines have always been open to a degree of interpretation, and recently, in the light of the ceasefire, FCO, DTI and MOD Ministers have agreed to interpret them in a more flexible fashion. Because of the Rushdie affair, however, the effect of the Guidelines for Iran have not been altered.

It was also agreed that the change in the interpretation of the Guidelines for Iraq should not be made public, since it did not represent a fundamental reversal of existing policy. The Government has, however, continued to state publicly that it maintains very strict Guidelines, on the sale of lethal equipment to either Iran or Iraq.”

[end p134]

You received this document. When you first saw it, did you think to yourself, can you remember thinking, “I did not know about that revised interpretation”?

A: No, what struck me and strikes me again, as you have read it out, is that they have said in this paragraph, in very much more expert fashion, the things which I was trying to say before lunch in a very much more stumbling fashion, because I am not overfamiliar with the jargon. It is all there. They thought that there was still that Guideline and it was a change in interpretation, and it did not represent a fundamental reversal of existing policy. They said it all there in very much better language than I was able to say. I think it is the same question we were discussing, what they believed the Guidelines –

Q: I was asking you what you thought when you saw this. I wondered whether you thought, “Funny, I have not been told about this”?

A: Which thing that I had not been told about?

Q: You did not at this stage know about the change in interpretation, that there had been an agreement to interpret the Guidelines in a more flexible fashion.

A: But it did not represent a fundamental reversal of existing policy, and there was always, as you will [end p135] recall, a modicum of flexibility, right from the outset. That did not seem to be strange.

Q: There is also the reference, in the last sentence, to the words:

“The Government has, however, continued to state publicly.”

It looks by that use of the word “however” that the drafter has appreciated that the public statements may not be exactly the same as what is actually happening.

A: No, although we were not making public something because it did not represent a fundamental reversal of existing policy, the Government has, however, continued to state publicly that it maintains very strict Guidelines.

That there had been a reversal of the existing policy means that they were continuing to maintain very strict Guidelines.

Q: It just above says that they are interpreting them in a more flexible fashion.

A: Yes, indeed, very strict Guidelines have to be interpreted with a modicum of flexibility, according to the surrounding circumstances, because you do not deal with a thing in a vacuum. You deal with the matter which is directly before you and the circumstances which are directly before you.

[end p136]

In that case, you do not get anything like so many philosophical or esoteric arguments on the meaning of the wording in relation to a particular situation, I think, or certainly we did not in this, which was Hawk.

Q: I would like to look at the briefing that you received. Do not put away that document. If you have the bundle called CO7, keep that.

I would like you to take out CO32/PM2 and it is at page 227. This is the advance briefing that you received from Mr Powell about the meeting that you were going to have the following week. It goes through the document that we have just been looking at and there was one particular – you see he summarises the arguments and he says that “the supply of Hawk would sail dangerously close to the wind in terms of our own criteria for arms sales for Iraq and Iran”, and he refers to the Iraqi regime being notoriously unpleasant and uses CW against its own people and there is likely to be a major public row here. He sets out the arguments, as I have said, against and in favour.

On the following page, 228, he refers to the fact that the MOD are naturally in favour and the Treasury against. Do you see that, the final paragraph?

A: Yes, and the Foreign Secretary has not yet made up its mind, so it came to me.

[end p137]

Q: Yes. When he says “the MOD are naturally in favour”, did you regard it as obvious that the MOD would be naturally in favour?

A: Yes. Can I just first say, as you have read it out, what this does is to summarise the arguments against selling very well and then the arguments in favour very well. They are always expressed excellently, in my view, as I say. And then, to direct my attention to what you were saying, “MOD are naturally in favour”, that is the one, you would expect Ministry of Defence to be concerned that we maintained a capability of producing aircraft in this country, and, if you were going to turn down every single export, that might put them in difficulty.

I, too, regard that as important. It is important but can be overridden by something else and the something else here was “nevertheless I accept the importance of that”. I also know that it is quite a decision to turn down a big order, which people in one big company and their employees, would have liked to have had.

Nevertheless, they were to us, as you saw in the decisions we made, overriding considerations. And they would use those. But MOD must be concerned that we do maintain the capability in this country, to produce [end p138] aircraft and also other things for that matter, tanks, because it affects a fundamental long-term capability to defend ourselves, particularly if you cannot get some of the requisite weapons from other countries.

So it was quite natural that MOD should think: “Right, if we are going to turn down all export orders, because there is not anything else in the offing, we must think very carefully about this.”

Q: We are not talking about all export orders. We are talking about this particular one.

A: Yes, but they know how many others there are or are not, you see.

Q: I am not quite sure that the other orders are the same –

A: Unless it is actually being given out, unless you have a contract. You do not just go on turning down export orders, which sometimes we have to do, or you may apply for them, against competition, and not get them. Obviously, the British Aerospace had to have enough orders to continue to work, to be able to continue to supply aircraft to this country. That, I think, is what it means. I do not think there is anything more significant in it than that, but that is quite significant.

I thought, “My goodness me, if we are going to [end p139] turn this down, I wonder what the problems are”, but very quickly that is overridden by the other matter, the chemical weapons on the Kurds, which I thought we cannot supply to a regime like that.

Q: We have turned over the page to the next briefing you have, 229.

A: “Sale of Hawk to Iraq.”

Q: Yes, do you have that?

A: Yes.

Q: It is another briefing for the meeting. If you look, the first paragraph, setting out the pros and cons, and again it is:

“We would be supplying equipment to a very unpleasant regime, and we could not guarantee that it would not be used at some point for internal repression or even for CW attacks. On the other hand, the aircraft is a trainer; it could be presented as being within the revised Guidelines.”

Yes?

A: Yes, indeed.

Q: So there was a reference there to the revised Guidelines?

A: Yes. On the other hand, there is a record in the main paper. It does not refer it in that way. Here you have the fundamental problem that we were referring to [end p140] earlier.

Q: Then I would like to go on to the next briefing you received from Mr Appleyard. The whole document starts at page 230, but the page I am going to is where he starts dealing with Hawk, which is at page 237. The first part we do not need to look at. It is not in relation to Hawk. If you go to 237.

A: How does it start?

Q: If you look at page 8 at the bottom.

A: I have one that says 8 at the top and 6 at the bottom.

Q: Go on until you have 8 at the bottom. Do you have it?

A: “Item sale of Hawk”?

Q: Exactly. The document goes through the various pros and cons. What I would like to do is to go to the next page, that would be 9 at the bottom, where it says:

“Background”. Do you have that paragraph 10, “background”?

A: Yes.

Q: We do not need to go through all these points, but, if you could pick it up at paragraph 11, do you see:

“The prospective sale has to be considered against the Government Guidelines concerning sales to Iran and Iraq which were announced to Parliament on 29th October 1985.”

A: Yes, those Guidelines.

[end p141]

Q: “Although the Hawk is designed as a training aircraft, it has a defensive capability”, and it refers to the details about the RAF, the numbers of Hawk and then do you see there is a sentence beginning, “Since the ceasefire”, do you have that, about six or seven lines down?

A: Yes, more flexible interpretation, but the same Guidelines.

Q: What this says is:

“Since the ceasefire in the Gulf War last August, Ministers in the three departments have agreed a more flexible interpretation of the Guidelines for Iraq, but not for Iran in view of the Rushdie affair and other factors. The ban on supply of lethal equipment to either side was reaffirmed, but it was agreed that orders for non-lethal equipment should be refused only if they would be of direct and significant assistance to Iraq in the conduct of offensive operations in breach of the ceasefire. FCO, MOD and DTI Ministers consider the Government could argue the sale would be within the revised Guidelines.”

Right?

A: Yes, you have in this whole briefing two things. One, we are still on the old Guidelines, and then there is something new and it does not really make very much of a [end p142] change of policy, if any. It is a thing we were discussing. Until the end, to me, it did not matter. It was the circumstances we had to take into account.

LORD JUSTICE SCOTT: At the time, did you recall noticing the inconsistency?

A: No, I did not. I was concerned with the big issue, the really big issue.

Q: Is that your writing in the left hand?

A: “Doubtful” yes, it is.

MISS BAXENDALE: Is the underlining under “more flexible interpretation” –

A: That is meant there: “MOD, FCO and DTI consider the Government could argue that the sale would be within the revised guidelines”, and I put, “doubtful”.

Q: Do you see the underlining? That would be yours as well, would it not?

A: Yes, the underlining is mine.

Q: So this particular underlining is underneath “more flexible interpretation”?

A: Yes, but that is no surprise, because the original Guidelines had some flexibility, as we have said before, because of what the Foreign Secretary said right at the beginning.

Q: In this document, you are being told about what words are now being used?

[end p143]

A: Yes, but we are being told different things in different places, and as I say, my mind was on whatever the Guidelines are. First, I did not think we could justify it, but, secondly, it was the big issue, and this had come to me because of the big issue, which some thought were within the Guidelines and some thought were not. Therefore, there was a disagreement, as we have seen, that the three departments could not agree. It was a big matter. It was a big order. Therefore, it came straight up. I was on really the big issue, and, as far as the detailed things are concerned, there are both sets of –

Q: If you look at page 239 it is being made clear to you – there is a reference to revised Guidelines and the wording that has now been used for Iraq is spelt out.

A: On?

Q: On page 239, what we were just looking at, there is a reference to revised Guidelines and the actual wording that has now been used for Iraq is spelt out. It was what we were just looking at, page 10 at the bottom.

A: This is the briefing.

Q: It was the document we were just looking at, the paragraph we were just looking at?

A: Yes. Were you pointing out to me the last sentence on that page?

[end p144]

Q: No, I was not. I was referring to the bits I had just read out, where it refers to the fact that it was agreed that orders for non-lethal equipment should be refused, only if they would be of direct and significant assistance to Iraq in the conduct of offensive operations in breach of the ceasefire.

Then there is a reference that the Ministers consider that one could argue that the sale would be within the revised Guidelines. I was merely drawing to your attention to the fact that the actual wording that is now being used for Iraq is being drawn to your attention and you are being referred to the fact that there are revised Guidelines.

A: Yes, I do not think that I would have recognised, necessarily, those revised Guidelines, but just merely as a sentence. It does not say they are revised Guidelines.

Q: They actually say

A: Only: “They would be of direct and significant assistance to Iraq in the conduct of offensive operations in breach of the ceasefire.”

Q: The next sentence said:

“FCO, MOD and DTI Ministers consider the Government could argue the sale would be within the revised Guidelines.”

[end p145]

A: Yes, I am sorry, that did not strike me at that time. I was on the big issue. It seemed to me I just wrote “doubtful” at the side. I did not think they were within the Guidelines, nor within the revised Guidelines, as now you point them out to me.

If we started with the Iraq paper at the beginning, which came straightaway, “UK defence sales”, a memorandum by the Secretary of State for Defence, the sale of Hawk to Iraq, the first sentence of paragraph 2:

“UK defence sales to Iran and Iraq are governed by Guidelines announced to the House on 29th October 1985”, these were defence sales. “These lay down…”, and so on.

So if I might respectfully say, and I think perhaps you will not disagree, the matter is not crystal clear.

Q: What I would like to do is now go on to the next briefing that you received. It is the next document, because I can see the wording is very hard to follow. In fact, I think it is 248. It is headed “Prime Minister OD, Thursday 27th July”. It is the last document in the bundle. Do you have that?

A: “Sale of Hawk”.

Q: Do you have that? What I wanted to do was to go to page [end p146] 247, which, in mine, is clearly numbered. Do you have then a clear numbering, 247?

A: Yes.

Q: This is another briefing from Mr Powell, and it is saying you read the OD paper on this at the weekend.

“The more I think about it, the more dubious the proposition looks. We are being asked to give carte blanche to a distant and hazy sales prospect with very major political and financial implications for the Government. Iraq is run by a despicable and violent Government which has gloried in the use of CW, and a substantial defence sale to them would be seen as highly cynical and opportunistic. It would not sit easily with our robust attitude towards nasty regimes.”

Then he says:

“It the not reasonable of the Iraqis to demand an open ended assurance now, even before negotiations begin”, and he is concerned about the substantial obligations on ECGD and he thinks this is all for a pot of gold which looks pretty uncertain anyway.

Then he is saying that there should be a much fuller assessment in any event, over the page. He is asking for a much fuller assessment than any public financial implications and the nature of the assurances being sought.

[end p147]

A: He could ask for it, yes. We did not.

Q: We are going to come on to that. In fact, Mr Powell is being very opposed to the idea, is he not?

A: That is his advice. It actually accorded with mine. Miss Baxendale, it was such a big matter on the Guidelines. If it were within the Guidelines… though there were other circumstances which meant we could not agree that sale. We just could not. That was the big issue. We were determined on the big issues because it seemed to me very, very clear-cut. I must confess that it was one of the shortest meetings we referred to, because it was such a straightforward decision. You do not and cannot sell, even though this is a big order; you cannot let those influence your judgment against your deep instinct and knowledge that it would be wrong to sell this kind of aircraft that could be used for a ground attack to a regime that had, in fact, used chemical weapons on the Kurds. So you did not need to get into detail. It was a big, big, big issue, one which went straight to the heart of the matter and we decided – Miss Baxendale, it took my colleagues in Cabinet at that meeting only about five minutes, and I eventually said to them: “Does anyone wish to argue to the contrary?” Not a single person did. They smiled with great relief and agreed wholeheartedly. The [end p148] Cabinet staff who were there expected to take down endless minutes… that was the big issue. It was the typical thing that came to a Prime Minister and got decided because all of the information was there. It was decided.

Q: Certainly. Do you have CO7/5, which is the note of that meeting on 27th July 1989? There is on the second page of the document, that is called page 5, you will see there is a reference to “in the course of a brief discussion”. Do you see that, the penultimate paragraph?

“It was argued that the proposed sale could not be reconciled with the policy Guidelines.”

Then we have at the bottom of the page:

“The Prime Minister summing up the discussion said that the Government would be lacking in integrity if it were to sanction the proposed sale in view of Hawk's ground attack capability and the record of the Iraqi regime, including its repression of the Kurdish population and the use of CW. British Aerospace should therefore be told that any applications for an export licence for such a sale would be refused, and that there were no grounds for anticipating the Government might take a different view in the future.”

Clearly you were very concerned and firm that this [end p149] aircraft should not be sold and you were concerned that the Government should not be lacking in integrity in allowing that sale?

A: Yes, I repeat the language which I used that came out a moment ago. It would have been wrong to sell those aircraft to that kind of regime. Wrong.

Q: What I would like to do now is to move on and go to a letter that you wrote in reply to one from Mr Angel.

LORD JUSTICE SCOTT: Can I just make one observation, before we leave this? It seems to me, looking at the Hawk papers, that the decision which you have described to us, and that was taken, owed really nothing to the Guidelines. It was a decision taken for factors which are well set out, and particularly the last briefing from Mr Powell and which you have described yourself, which would have been there, present, whether or not there had ever been any Guidelines?

A: Yes, even though that sale might have satisfied the Guidelines, I really was not prepared to make it. There were other circumstances, so, getting within the Guidelines was not the only thing, if there were such big circumstances like this.

Q: The proposition for the sale was rejected, notwithstanding and independently of the Guidelines?

A: There were things that we had to consider, in addition [end p150] to the Guidelines. Big things.

MISS BAXENDALE: Could we go to

A: And it was done briefly.

MISS BAXENDALE: MOD 40, part 3, page 43. Page 43 is a letter of 28th July 1989 that was sent to you by Mr Angel from Aircraft Equipment International, and he says:

“I read today in today's Financial Times that the proposed Hawk sale has been blocked, and that the probable outcome is that the choice by Iraq will now be the Alpha Jet or other aircraft.”

He is complaining about this decision, because it is affecting his industry and his exports.

What I would like to go to is the reply that was drafted for you and which was actually sent. The draft is at 147 and the actual letter is sent at 159. I think it is probably best to go to the actual letter. It is page 159. It is sent on 21st August 1989 and it is just over three weeks after the Cabinet meeting. If we could look at the letter it was signed by you. It thanks Mr Angel for his letter and it says:

“Since the beginning of the conflict between Iran and Iraq, the Government has pursued a policy of impartiality as the most effective way to promote a peaceful settlement in the Gulf. During the conflict, [end p151] we have prohibited the sale of any lethal equipment or any defence equipment which could significantly enhance the capability of either side to prolong or exacerbate the conflict. That policy still applies. All applications for export licences for defence equipment to Iran or Iraq continue to be rigorously scrutinised. These restrictions on defence sales are kept under constant review, and are applied in the light of prevailing circumstances, including the ceasefire and developments in the peace negotiations.”

By 21st August 1989, you had been at the Cabinet meeting and you had had the documents that we have gone through. Here it is suggested, is it not, by this letter, that the same Guidelines have been applied, the same criterion is being applied to both Iran and Iraq?

A: We discussed this before lunch, and we differ about it. I recognise the difference. As I said before, there were circumstances applying to Iran, which did not apply to Iraq. I think that was 1989. Therefore, we took those circumstances into account.

When it came to this particular decision, we took the circumstances of the chemical weapons into account.

The paper before the meeting on paragraph 2 started off:

“UK defence sales to Iran and Iraq are governed by [end p152] Guidelines announced to the House on 29th October”. We come back, I think, to the same question, which I do not think I can usefully add anything to, because we are coming up against it time and time again. The papers say they were the Guidelines applied on 29th October 1985. Then there were some other ones. The question is, was there a change of policy. I do not think I can usefully add to the many words that have been said.

If you look at this letter, again, it is not a legal document. I think, in that paragraph, the people who have drafted it have done really very well.

“All applications for export licences will continue to be rigorously scrutinised.”

They were. This one was. If all three scrutinised it and could not agree, they put up all of the argument and then we had a meeting about it and made a decision, “They are kept under constant review” – it was not very long before, in fact, we were going to change them fundamentally, but we did not because again circumstances changed.

“And applied in the light of prevailing circumstances.” There you are, the circumstances either in Iran or in Iraq. “Including the ceasefire and developments in the peace negotiations.”

I think they had an astonishing amount in that and [end p153] I think, in the light of the major decision which we took, the feeling that there is that the Guidelines that were really in operation, the policy of the Guidelines had not changed, though the wording may have done, and it still seems that there were two sets, which were not thought of as materially different.

Q: Can we go back to the letter?

A: Which letter?

Q: Page 159. I do not think, in fact, you have yet answered the questions. I do not think I have actually asked all the questions yet on this letter, but we will try to see. In this letter, you wrote and said that:

“During the conflict, we prohibited the sale of any lethal equipment”, et cetera, “or any defence equipment, which could significantly enhance the capability of either side to prolong or exacerbate the conflict. That policy still applies.”

In fact, as had been spelt out to you about three weeks previously, those words “the defence related equipment”, et cetera, were no longer still applying to exports to Iraq. That is what this letter is concerned with, exports to Iraq.

A: I am going to add to your problems and mine and look at the whole sentence, as I would look at it if it were a legal document. I should say it should be drafted:

[end p154]

“During the conflict, we prohibited the sale of any lethal equipment”, full stop, “that policy still applies” full stop, and then go on.

Q: That is the problem, it did not say that, it goes on to say the rest.

A: What I am saying is that it was a general reply. We thought it gave the general view and now, looking at it, in the light of constant cross-examination, which you cannot do when you are trying to get a letter out, looking at it now, for the first time under new eyes, what that should have said is:

“During the conflict, we prohibited the sale of any lethal equipment, and that policy still continues”, and then gone on to the other, the defence related equipment, which is dealt with under different heads.

LORD JUSTICE SCOTT: I follow that, but the conclusion, perhaps, that follows from that addition to the sentence, is that the actual letter, could not be justified as it stands?

A: We come back to the question that, if there was a change in policy in the revised Guidelines as distinct from a technical change (or those that were doing it thought that it was a technical change) if there was a change in policy, I should have known and it should have been announced. It is an “if” question, and I am afraid, the [end p155] more papers we go through, it still seems that it is not absolutely clear.

Q: The two words of the short sentence “that policy still applies”, namely the words “that policy”, is a reference to the formula which is in the preceding question:

“Prohibit the sale of any lethal equipment or any defence related equipment” and so on. That is what is being referred to as “that policy”.

A: Then, because of the conflict it would require a change. “These restrictions are applied in the light of prevailing circumstances”, which we agree we have to take into account, “including the ceasefire”, so that has replaced the conflict, and “developments in the peace negotiations”.

Q: I must say I do find it very difficult to understand why the answers to the letters, did not simply say:

“For Iraq we are now applying the policy of prohibiting the sale of defence related equipment which would be of direct and significant assistance in the conduct of offensive operations”, and so on, the new revised wording that we have seen.

That would have been correct. It would have been accurate and I find it very difficult to see why this inaccuracy is to be found.

A: It is the difference between “enhance the capability of [end p156] either side”.

Q: Maybe there is not much in it, but one is accurate and the other is inaccurate.

A: I am saying it is the difference between “significantly enhance the capability of either side” and I think the other one was “direct and significant”.

Q: “Assistance in the conduct of defensive operations”.

A: If that is a change of policy, then, obviously, one should have –

Q: Whether or not there is a change in policy, that is an important question, but quite apart from that, as it is known what form of words was being used for the purpose of regulating exports to Iraq and, as the form of words being used for the purpose of regulating exports to Iraq was not the form of words referred to in this letter but was the revised form of words, it is very difficult to understand why the revised form was not used in the letter.

A: The letter will presumably have taken into account the paper before us, which was the paper upon which we made our decision, which started off:

“UK defence sales to Iran and Iraq are governed by Guidelines announced to the House on 29th October 1985.”

Q: That is the letter.

[end p157]

A: To go back to what your Lordship said, if there had been a change of policy, by the change of wording, I should have been informed, if there had been, and it should have been announced to the House. It was not long before we were attempting to change them again, a change which did not come about for reasons which your Lordship knows.

MISS BAXENDALE: What I would like to do is go on to a Parliamentary question you answered from Mr Campbell-Savours MP on 10th November 1989. If we go to bundle 49/3, page 380. Would you like to know where it is in your questionnaire? It is page 18 of your questionnaire, I think. Do you have that document? It is page 380 at FCO 49/3.

A: Yes.

Q: If you look, in the top of the right-hand column, it is from Hansard, 10th November 1989. The question from Mr Campbell-Savours:

“To ask the Prime Minister whether she is satisfied that no involvement of Iraqi businessmen in chemical defence and communication industries in the United Kingdom exists which compromises national interests”.

Then the answer. You gave the answer:

“We use all information and legal powers available [end p158] to us to control illegal or improper procurement activities in this country. The export of chemical, nuclear, defence and other sensitive goods is subject to strict export licensing regimes. In addition, supplies of British defence equipment to Iraq and Iran continue to be governed by the Guidelines introduced in 1985.”

A: The same point as the last sentence, yes.

Q: There is another point I wanted to ask you about this. If you look at the background briefing, page 383, there is no reference in that to the Guidelines at all?

A: I have not read it.

Q: Just before you say that, there is not a reference to the Guidelines. While we are here, I wanted you to look at paragraph 2 as well, which refers to Matrix Churchill. It is more convenient to ask you now about this than to come back later. I am taking it that you remember the intelligence information, the various facts we referred you to in relation to Matrix Churchill. Could we deal with this now?

“We have recently agreed to export licences for a number of pieces of equipment, manufactured by Matrix Churchill, following a ministerial meeting with the DTI and MOD. We had no reason to believe that the lathes which were the subject of licence applications would be used for the manufacture of nuclear or military related [end p159] items, and these were not ideally suited in any case to nuclear applications. Licences were granted on the condition”, and then there are, among other things, that a survey of Iraqi procurement activities in the UK being conducted by DIS was pursued.

I do not know if you can answer this question at this stage, but we have referred you to a great deal of intelligence information about Matrix Churchill, leading up, do you remember, to a meeting of Ministers on 1st November 1989? If you would rather leave this question until later?

A: I would rather, yes, thank you.

Q: I am happy to do that.

A: 1st November 1989 – can we deal with that later?

Q: Yes. I would like to move on to Matrix Churchill and what you knew about it. If it is of assistance you can pick it up at page 34 of the questionnaire. I was trying to do things more quickly and I realised what I had missed out is the Iraq Note, which I think might concern everyone.

On 21st June 1990, you received a note from the Secretary of State for Trade and Industry, concerning trade with Iraq. We find that at CO32/PM3, page 34.

A: This is the note of the Trade and Industry Committee, on trade with Iraq?

[end p160]

Q: Yes, it is the document that triggers the Iraq Note.

A: Starting “I am concerned about”?

Q: Yes, exactly. It is from Nicholas Ridley to you, from the Secretary of State of Trade and Industry. It is concerning trade with Iraq, and I think, to some extent, it had been caused by the Customs and Excise visit to Matrix Churchill. You see that in the second paragraph.

A: That they were going that day to make a visit?

Q: Yes, I think they called the previous day.

A: “I understand Customs are today making an ostensibly routine visit to that company and will report on what, if anything, they recover.”

Q: Yes, and he is concerned that any action following the visit is likely to worsen relations with Iraq and he refers to the fact that relations are already strained and that he had written to the Iraqi Minister to assure him of our wish to continue normal commercial relations with Iraq.

Then that any investigation by Customs and Excise into Matrix Churchill is likely to be reported to Baghdad. Then there is a reference to ECGD's exposure.

What he is suggesting one finds at the end, on page 37 of the minute. He is suggesting that there is a strong case for a more thorough review of the policy in [end p161] this area, which would take into account the policy and political arguments in favour of export controls, the commercial consequences for British industry, and the financial risks for ECGD of continuing friction with Iraq.

“We need to reconsider the rationale of the Guidelines of defence sales to Iraq and Iran”, and that document, if we go to page 38 of the bundle, you consider that document and you ask the Foreign Secretary to chair a Cabinet meeting about it and to report the outcome to you?

A: It would be an ad hoc meeting of Ministers, yes.

“A ministerial discussion would be useful but she would be grateful if the Foreign Secretary”, who was then Douglas Hurd, “could chair this, reporting the outcome to her.” That was on 22nd June 1990.

Q: Yes.

A: I would not chair everything, and I thought that it would be better if someone else got down to – as I have said earlier – a major reconsideration of the Guidelines.

Q: It is suggested that you do not chair it, if you look at the handwriting on page 34. Is that Mr Powell 's handwriting?

A: Yes, that is Mr Powell, and I agreed.

[end p162]

Q: He is saying that he does not think you have time to do it?

A: I underlined it.

Q: For the purpose of the meeting, the officials prepared a document. We have been talking about the Iraq Note. You find that at FCO 62/11. It is page 2348.

A: Yes, I have it.

Q: I understand that you did not see this document, presumably because you were not going to chair the meeting?

A: That is the Iraq Note.

Q: That is the covering letter to the Iraq Note and then the Iraq Note itself is at 2351.

A: I did not see it, no. It was one of the questions you have asked me. I did not see it. The Foreign Secretary was chairing that meeting, I was awaiting the results, but I have seen it since.

Q: You have referred to various passages in it. What I would like to do is to go to the note of the meeting on 19th July, which we find at FCO 623, part 12, page 2456.

A: The note of the meeting or the Foreign Secretary's note to DTI? The actual note of that ad hoc meeting?

Q: I am trying to make sure which it is. It is the note of the meeting. It is the minutes of the meeting. You [end p163] find them at FCO 62/12, page 2456.

We are going to come on to the Foreign Secretary's discussion of the meeting with you, but I noticed on this document you will see that a copy of it was sent to Number 10, do you see the handwritten comments at the bottom of the left-hand side, copies were sent to you?

A: Yes, it would have been sent to Number 10, because of my request.

Q: You would see the letter?

A: The letter or the memorandum?

Q: You would see this memorandum?

A: No, I probably did not read it, because I was waiting for the Foreign Secretary to report to me, but it was available and I could have seen it.

Q: It refers –

A: This is a report of the meeting.

Q: Yes, it is a report of the meeting. It refers, at the bottom of 2460:

“It was agreed that the course to be recommended to the Prime Minister should be the replacement of the present Guidelines by more limited and clearly defined controls”, and that is Option 2, involving a continuing ban on the export of lethal equipment, and:

“It was going to apply to weapons designed to kill, but not weapons for platforms”, et cetera.

[end p164]

“Applications for export licences for equipment no longer banned should be considered on a case-by-case basis.”

Then, if you go down about three lines, on the next page:

“There should be no special constraints on the export of machine tools and other industrial goods to Iraq and Iran, other than those stemming from recent revised COCOM controls. This would need to be announced to Parliament and the aim should be to do so by written answer during the Parliamentary spillover.”

Then at the bottom there is a reference to the Foreign Secretary saying he is going to minute you conveying the conclusions and seeking your endorsement of them.

What I would like to do now is, if you go on to page 2467, we have a draft document, it looks as though there was an intention to send you, which is a summary of the meeting. It appears from our documents that, in fact, the Foreign Secretary actually spoke to you, if you go to 2465. We have not found the final draft of the document at 2467.

A: No, he did not send a written note, for the simple reason that I saw both Foreign Secretary and Chancellor of the Exchequer fairly regularly. I will not say on a [end p165] certain day, but I saw them regularly, because they were the most important Ministers. He had a date to see me, I think, on July 26th, and preferred to come and report to me directly. So he did not send the note. I saw those two Ministers more regularly than anyone else.

Q: That would then go with 2465 which is 26th July 1990. It is from Mr Powell to Mr Wall at the Foreign and Commonwealth Office:

“The Foreign Secretary reported to the Prime Minister this afternoon on the outcome of the inter-departmental which he chaired. Some relaxation of current Guidelines has been agreed, but particularly in view of the current situation between Iraq and Kuwait, he thought it best to take no action for a few weeks at least. One area where movement was possible was over machine tools which were no longer caught by COCOM. He thought it right to relax restrictions on these.”

Then you found his presentation convincing. If you go over the page you have then the draft of the document that the Foreign Secretary then sent to the Secretary of State for Trade and Industry, giving a fuller account of his meeting with you.

A: This was copied to us.

Q: If you would like, I can take you to the actual final version.

[end p166]

A: I do not think there is any difference between the draft and the final version. I do not think I saw the draft. I saw the final version.

Q: The point about this was, was it not, that what you were being told was that a recommendation was going to be made to you, that the Guidelines should be changed, but that that recommendation was to wait for a few weeks for the situation in the Gulf to resolve itself, to stabilise, and in relation to the equipment in relation to machine tools, that those could be released immediately?

A: Equipment that had been released by the multilateral COCOM agreement, which had taken place previously. That COCOM agreement was usually on high technology, usually on some computer control of a particular weapon. I did know quite what had been released by COCOM and what remained.

If you look back, Miss Baxendale, to the report of the meeting which the Foreign Secretary chaired, you will see, among the arguments used, on the last page of the report of the meeting which the Foreign Secretary chaired, on 19th July, (Page 2465), with the details of who was present on the front, and on the last page

MISS BAXENDALE: 2460.

A: Yes, the last page.

[end p167]

LORD JUSTICE SCOTT: 62/11.

A: The last page is 2461. In the argument of that meeting, it had these words, and I am on the top line of the last page. The first complete sentence there, says:

“Decisions on export licences should continue to pay full regard to the United Kingdom's international obligations in respect of the Non-Proliferation Treaty, the missile treaty, chemical weapons and biological weapons. There should be no special constraints on the export of machine tools and other industrial goods to Iran and Iraq other than those stemming from the recently revised COCOM controls.”

You can read that in two ways and this is one of the problems. Whether the recently revised COCOM controls were taken into account, the obligations under those, I do not know. What I do know is I was advised that, as the COCOM agreement had made certain revised proposals, that we should accept those proposals, and release those items, which otherwise would have been caught.

You will find that referred to in the second paragraph, I think, of the Foreign Secretary's note to me. My copy is stamped 2nd August, but the date on which it was sent was 1st August.

If we go through the note, it says:

[end p168]

“The outline of recommendations we had agreed. In view of the dispute between Iraq and Kuwait and the new threat, it is not the time to take a final decision, and I delayed putting out recommendations for a few weeks. However, it is right to pursue a separate measure”, and he goes on, “to relax our restrictions on industrial goods, particularly machine tools, which have, until now, been caught under the old COCOM arrangements. I have explained, there is no justification for making special additional provisions to keep those controls in place for Iran and Iraq and concluded that these controls should therefore elapse.”

Whether all machine tools were caught, I think the only machine tools caught of course were those that had attached to them a computer installation. Otherwise I do not see how they were caught under COCOM. I do not know what the revised measures were.

Then it goes on to the third paragraph and says:

“The Prime Minister accepted these points.” It is true, I did. If the international meeting had revised the COCOM rules to release some things, then it seemed to me, as is also in the minute, that, if they were going to be supplied to the Soviet Union, we could not, in fact, as the meeting said, have special regulations stopping them for Iran and Iraq. What [end p169] precisely was caught, I do not know.

“The Foreign Secretary referred to generally machine tools which have until now been caught under the old COCOM arrangements.”

MISS BAXENDALE: What I would like to do, Lady Thatcher, is ask you more about those particular passages when we have looked at the relevant Matrix Churchill ELAs, bringing that up-to-date. What I would like to do is to move on to Matrix Churchill and go to the further tranche we asked you about, which starts at pages 34 and 35 of the questionnaire.

In the course of the evidence that we have had, in relation to the Matrix Churchill ELAs that were considered in 1988/1989, Mr Barrett, an official in the Defence Export Services Secretariat, wrote a brief to Lord Trefgarne, for a ministerial meeting on 21st December 1988. We find that at MOD 21, page 31. It is a long briefing document, but, if you could go to paragraph 21, which is page 39, there Mr Barrett is dealing with – I am sorry, it is page 41 at (b). He is dealing with specific cases. You see that from the bottom of page 39 in (b) he refers to Matrix Churchill lathes, and, if you go five lines down:

“Intelligence sources indicated that the lathes were to be used for making shells and missiles.

[end p170]

Information became available after licences for 50 lathes had been granted and some shipped. They are general purpose lathes which would not be licensable if they did not contain a numeric controller which is imported from Japan. The Prime Minister agreed that, in order to protect the intelligence source, the licences already granted should not be revoked.”

Then it talks about the current applications, and further down the paragraph, he says:

“This case needs to go back to the Prime Minister before we could recognise approving the current applications.”

Do you see that?

Then, over the page, page 45, there is at paragraph (g)2, there is another reference. These are the points, the line for the Minister to take. Do you see at (g)2:

“Matrix Churchill lathes. More disturbing intelligence coming to light. Press for a separate submission to go to the Prime Minister as she was involved last time.”

Do you have that? It is page 45. Do you see that? Had you been involved –

A: I have had no submissions on Matrix Churchill at all. I asked for a trawl of documents. I have no recollection [end p171] of being involved in these specific Matrix Churchill applications and am unable to find any evidence of a submission in the documents to show that I was involved. I think the first time that I recall knowing this was – I think we have been through it – Nicholas Ridley 's. I have no knowledge of this at all.

Q: Do you have any idea at all why Mr Barrett

A: Or any of the other ones.

Q: – should have thought you were involved?

A: No, if I was involved in a particular decision, like Hawk, it would have come up with a note with the arguments for and against. There is no such note in existence that we have been able to find, and I have no recollection.

Q: We have not found any documents suggesting that the later decision went to you either. This was in February 1989. Mr Barrett is talking about the earlier one in 1987/1988.

A: No submission came to me on Matrix Churchill. I asked particularly for a trawl through the documents. I did not recollect anything when I asked for a trawl.

LORD JUSTICE SCOTT: When you say you asked, you asked for the purposes of the Inquiry?

A: Yes. I found a reference here, which is the one we already looked at, Nicholas Ridley 's document, and also [end p172] in intelligence.

MISS BAXENDALE: I did ask you

Text of lines 2-8 damaged in original.

MISS BAXENDALE: What he said was he could not remember thinking you were involved in January 1988. He thought someone told him that you were involved later in the year, in September.

A: I have no such recollection, which is why I asked for minutes to see if there had been something which I had not recalled. If I had been asked to make a decision, it would have been, as the Hawk was, in writing. I asked just to make sure that there is nothing that I have missed.

Q: I would like to ask you now some questions arising from the use of intelligence reports. What we have done is [end p173] to go through the various intelligence documents.

If you start at page 37 of the questionnaire, we set out the relevant Matrix Churchill ELAs, and then we went through a number of intelligence reports, all of which we have dealt with in the Inquiry. I do not intend going through them all with you now. Can I take it that you have read what was set out in the questionnaire?

A: Yes.

Q: Much of the intelligence deals with project 1728, which is identified as a large Iraqi missile project. Do you recollect that, if you start at page 40?

A: Can you tell me which page of the questionnaire we are on?

Q: Page 40. Perhaps you should start at the bottom of page 39, which refers to the meeting of the Working Group on Iraqi procurement. Do you remember that said:

“The company now has a firm order from Iraq for these lathes.”

A: Is this in the red book?

Q: No, this is not in the red book. Lady Thatcher, I am not suggesting that you saw these pieces of intelligence.

A: If it had been in the red book. I would have seen it, but I do not think I saw this.

[end p174]

Q: All the pieces of intelligence I am going to ask you about, I do not think you would have seen any of them. I am not suggesting that you did see any of them. What I want to do, though, is ask you questions about the way in which this intelligence was used, or rather not used.

LORD JUSTICE SCOTT: The reason for the questions is not that you saw the intelligence, and that you had a personal involvement. It is that there is a good deal of material which has been placed before me indicating that intelligence was coming in from the Intelligence Agencies, but was not in the event used. As Prime Minister at the time when this apparent failure in administration was happening, I thought it likely that you could give me some assistance in connection with it and with the sorts of failures that appear to be evidenced.

A: I had noticed what had happened from these documents and noticed that the relevant intelligence did not seem to get to the relevant meeting in time for the decision.

Clearly, if you are going to have a meeting on a decision on which there is intelligence available and you do not get it, either you need to delay the meeting until the intelligence is there, or you need to look and see why the machinery has not got it to you. I accept [end p175] there is no point in having a meeting about a particular application unless you have all the relevant information before you. It seemed to me, going through this, either it was that the machinery was there and it was not being used effectively on that occasion, or else the machinery itself was defective. In either case, it is a matter for concern and for the inquiry.

Q: The concern has come to my attention from the very focused nature of the Inquiry that is being carried on. Was this a concern which you, in your time as Prime Minister, had; the use made of intelligence, whether it was efficient, whether there were deficiencies in the system in place for making use of it?

A: Certainly, as far as I was concerned, I had regular weekly reports, assessed because, as I think I have indicated in the note previously, you do not take raw intelligence, because there is misinformation, and so on. They take all of the intelligence which has come in and they assess it and it is the assessed intelligence which comes round in the red book, and I would have that in my box every weekend and also there would probably be a note accompanying it giving me an effective summary and directing my attention to things which were extremely important to know.

I rather assumed that that happened. Obviously I [end p176] would assume it would go to the Foreign Secretary, and then pieces of information, which were specific to certain decisions, you would expect then to get to the relevant Minister or Ministers who were going to consider those decisions.

Having dealt with this for some time, whether it is the time between raw intelligence and assessment, or whether it is the time between assessed intelligence reaching departments and not being immediately circulated for reading, I do not know, but I have noticed on occasions, to which you have drawn my attention in the questionnaire which you let me have, when it clearly did not get there.

To have a meeting without all the relevant information before you is just – it should be delayed until you get the relevant information.

Q: You have to know there is something to get. The problem is that the –

A: That would be a routine inquiry, one would have thought, or a routine question, or whether the machinery does not work – I do not know, it seems to me there are two points, as I was thinking about the questionnaire which you sent to me. Either the machinery was there and it did not work effectively on those particular occasions, or else the machinery was not sufficiently specific.

[end p177]

That is a matter for concern and to be pursued, particularly with the Cabinet Office, to whom these things will circulated.

MISS BAXENDALE: Can I summarise? It is merely a summary to what appears to have happened in relation to the intelligence. In the Foreign Office, the relevant Desk Officer who had known about the intelligence left his desk, and the new Desk Officer had not received sufficient clearance to be able to read the intelligence reports, and the more senior officials either cannot remember seeing the documents, but certainly did not react to them. They think they may not have seen the documents.

Then, in the Ministry of Defence, the intelligence went to several Defence Intelligence desks, but never got to the right Defence Intelligence desk, or was overlooked, anything that came through was overlooked.

Then, in the DTI, most of the intelligence was not circulated to them at all, and that which was circulated was overlooked.

A: A combination of the things which I put to you. The machinery was there in one case, did not work effectively, because there was a change of Desk Officer. When you first come to deal with intelligence, it is perhaps –

[end p178]

Q: He did not even read it. He was not able to read it.

A: You get experience when you read it.

LORD JUSTICE SCOTT: He was not cleared for it.

MISS BAXENDALE: That is not fair, because the DTI

A: The other one, the machinery was there, but

Q: It was overlooked.

A: It did not work properly.

Q: In the MOD there is machinery but it never gets to the right desk. In the DTI, I should have said the intelligence was not circulated, was overlooked, or the official was not cleared to read the intelligence.

Then the final point I wanted to put to you in relation to this is that, in fact, in December 1989 Matrix Churchill was eventually found to be the company referred to in 13th October report. Can I tell you which one that was? Let me just refer to that particular one. It is page 42 of the questionnaire. If you recall, it was a very specific intelligence report about a factory being built and referring to specific groups of lathes and machine tools being sent.

It referred to a UK company and eventually

A: Is this (e) on page 42?

Q: Exactly, it refers to a UK company. I do not want to go through the detail of it, but it referred to a UK company, and, although the intelligence report is dated [end p179] 13th October 1989, it was not until December 1989 that the company was found to be Matrix Churchill, and even then nothing was done. Even though eventually it comes out who the company is, Matrix Churchill, nothing is done even then.

A: As I understand it, there is a general assessment that there was a company involved. It was not identified until some time later, but your point is that, when it was identified, the information did not get to those to whom it was concerned in making the decision that they had to make.

Q: Yes, no Minister was told, even though the name is then discussed in the REU, no Minister is told, “Look, these ELAs which you have just passed on, 1st November, related to this equipment, which we now know is going to this munitions factory, and there is an opportunity to revoke those licences.”

That never happens. First of all, you have the intelligence never getting to the Ministers for their meeting and then, later, after the meeting, nothing is done when the company is referred to in one of the intelligence reports, and is found to be Matrix Churchill, still nothing happens.

You have already said that you do not think that the machinery was either used properly or the right [end p180] machinery was in place. What I want to

A: It may be both, if the right machinery is not in place, then we must get it in place quickly.

Q: That is what I wanted to ask you about.

A: Or we may get a procedure for all chairmen of committees of all those who are doing the brief, or whatever it is. You have to make certain, certainly the point which his Lordship mentioned, that the person is cleared for intelligence and, therefore, it must be a person who is cleared for intelligence to assemble the information.

Q: What I wanted to ask you about, though, is responsibility for this. In each of the departments I have referred to, that is the MOD, DTI and the FCO, to what extent is it a Minister's own responsibility to make sure that the departmental system for sorting intelligence and providing him with it is working adequately?

A: I am not quite sure I can answer that precisely, but I can only say that it is quite absurd to have a meeting and not have all the relevant information there. You would assume that either the person who was going to chair the meeting or the person who was going to advise them did ensure that all the information was there, and that means enquiring if there is any.

This seems to me to be a matter of common sense.

[end p181]

I cannot say that it comes from my careful consideration of line of responsibility. It seems to me a matter of common sense which should be done. I was very concerned when I saw that the relevant information had not got to the relevant person and therefore there was a delay. There is sometimes a delay between raw intelligence, of which there can be a mass coming in, and the assessment of it, and then the important thing is when it reaches the department, it should be dealt with and get to the right desk quickly.

Q: Get to the right desk with someone who can read it.

A: To the right desk to somebody who is cleared to read it. That is what I mean by “the right desk”. It is not the desk; it is the person who is sitting at it.

Q: It does seem that departmental systems were not very effective in what we have been looking at, and we said to you I think you said you did not receive it. We sent you a letter yesterday. I hope we have given you

A: I hope you will not be offended if I said it did not get to me if you sent it yesterday.

Q: I think it was delivered by hand.

LORD JUSTICE SCOTT: It was not sent through the post.

A: Point made. I had a meeting, quite a long meeting with Mr Gorbachev yesterday and then I was speaking later in the evening.

[end p182]

LORD JUSTICE SCOTT: Lady Thatcher, we have a certain number of questions which we would still like to put to you, and I do not know whether you are flagging but I suspect that the unfortunate ladies on the machines may be and so I think it would be appropriate if we took fifteen minutes break. 4.05.

(3.50)

(A short break).

(4.05).

MISS BAXENDALE: Lady Thatcher, I was going to ask you, we were discussing the dissemination of intelligence. I wanted to ask you a bit about ministerial responsibility and accountability. I do not know if you have had an opportunity of looking at the document that we set out, a brief statement using particularly the questions of procedure for Ministers, setting out ministerial responsibility. In particular, I was going to ask you whether you thought paragraph 5 summarised the position as you saw it.

A: This is paragraph 5 with (a), (b) and (c), yes, this is the official document and it tells us what is the appropriate –

Q: It is a document prepared by us.

LORD JUSTICE SCOTT: It is a document prepared by the Inquiry.

[end p183]

A: It looks to me pretty similar to what is contained in the official document below.

MISS BAXENDALE: We hope so.

LORD JUSTICE SCOTT: We hope it is accurate.

A: It seemed to be a little familiar.

MISS BAXENDALE: In fact, the four set out the

A: Without confirming every word, I would not quarrel with it.

Q: It is right that accountability requires that a failure in organisation and structure, which results in the failure by the Government to carry out its policies, is a matter which the relevant Minister must answer?

A: May I just say that, it is not necessary for all number two Ministers to be cleared for intelligence. In intelligence, you only clear those who have a need to know. They should be cleared, and, if they are changed, a new one obviously should be cleared. But not every Minister at a certain level has a need to know intelligence. His duties, if he is doing this work, in DTI, mean that he does have a need to know.

This work, in MOD, and probably others, he probably does have a need to know and also DTI, MOD – what is the third one?

LORD JUSTICE SCOTT: Foreign Office.

A: And Foreign Office of course, because the Foreign [end p184] Secretary has very special responsibilities.

You would really need to see that, when you have a new Minister, he was cleared to receive the necessary intelligence, and that was part of the business of seeing out the old one and seeing in the new one, and also that, whoever was advising him, similarly, was cleared for intelligence, on the basis of need to know. Otherwise, you do not let intelligence go to people unless they have a need to know. The less that is distributed the better. The need-to-know basis is the common sense basis.

I think more than accountability and responsibility, probably, you should do it on a common sense basis and in the light of ordinary efficient operation of business, and something went wrong.

Whether it was not cleared with the relevant Minister or whether it was not cleared to the relevant adviser, I do not know, but I would have thought that had become really standard practice, and I think what we have to do is to watch whether a redistribution of duties between different departments or new duties taking into account the need-to-know intelligence. That means being, I think, a good deal more alert to the intelligence aspect of need-to-know than perhaps we have been.

[end p185]

It may be that it was either a failure in the existing machinery, or that it is a failure to update the machinery to new circumstances or new duties, or to new people.

MISS BAXENDALE: In your statement, you say:

“The distribution of intelligence within Government and the machinery for ensuring that those who need to know have speedy access to relevant information are matters which the Inquiry may consider should be followed up with the Cabinet Secretary.”

A: That would be the place to follow them up, because that duty is where machinery matters are dealt with.

Q: So you are looking at that in relation to the machinery?

A: They know it, from Government to Government, from person to person, they know the continuity.

Q: What I was not quite sure is whether you were saying that the responsibility for ensuring that the system works is that of the Cabinet Secretary.

A: No, I do not think it can be. I think that you put it at the top to senior Ministers responsible for the conduct of his or her own department and the actions carried out. I think what we have to consider is whether each Minister, when he is appointed, say he has never been in a department which has dealt with intelligence before is, in fact, new, because you do [end p186] swing them about.

Q: We have seen that.

A: After all, I started in pensions, perhaps rather appropriate for my present status, but I started there and then went to education.

These detailed matters obviously need to come under reconsideration because there was no point in having a meeting if information is available and you have not got it at the right place, at the right time, with the person cleared, and his adviser cleared.

MISS BAXENDALE: I think that summarises

A: His Civil Service adviser.

Q: If you look at 5(c) of the note we prepared, it says:

“Specifically where a Minister has responsibility for taking decisions in a sensitive area and knows of the sensitivity of the decisions which he is taking, he has a duty personally to ensure himself that he has been adequately briefed. That means in appropriate cases asking relevant questions about briefing or testing the conclusions and recommendations.”

A: I think now that would probably be the position. I do not know whether they would have identified that as the position before. As a matter of common sense, you would have expected the person taking the meeting to see that the relevant information was there, and that meant [end p187] seeing if there was any, or asking someone to put an inquiry through to see if there was any and to see that he was cleared.

I do not know that it has been quite spelt out like this, and, if it has not, then there is a need to do it. We clearly must get it right for the future.

Q: To what extent were you, as Minister for the Civil Service, responsible for ensuring that these systems were in place and were operating properly?

A: I suppose ultimately I was responsible for everything. I would certainly be blamed for everything if it went wrong, but from time to time you would look at these things and, if something comes up in the course of business, you try to make the relevant changes. I think it is a matter of good management and common sense, modified by the fact that you do not scatter intelligence more widely than you need to.

Q: I wanted to ask you one other point on intelligence. It is rather a different point, but we have had questions about source protection and protection of the availability of information. One is a physical risk to an individual and one is being concerned that a supply of information should continue.

What I wanted to ask you about is, where there is a question about using intelligence, because of perhaps [end p188] physical risk to a person, is that a matter that should be decided by the intelligence agency, or should it go to the relevant Minister to take a decision on the point?

A: The initial decision would be taken by the head of the intelligence agency, again for obvious reasons, and, if that were protecting a source, that would be overriding, and, if the Minister did not like that, and wanted to override the head of the intelligence agency, the head of the intelligence agency would go to his Cabinet Minister, which would probably be either the Foreign Secretary, or come to me, because of the importance of protecting sources. In protecting sources, you are protecting your whole future of being able to get intelligence.

LORD JUSTICE SCOTT: I suppose these things are not always black and white?

A: No, they are not. The difficulty with some of these things is where they are not black and white. They are borderline.

Q: A particular object to be attained in a particular case, by using available intelligence would have to be weighed up against the importance of the source. I am not talking about physical risk to the source; I am talking about the continuation of the flow of information [end p189] through the channel in question.

A: If you were going to dry up that source, that would be quite serious, so I would intend always to support intelligence knowing full well that they would not advise us to protect that source unless it was important.

It may not be relevant to your Lordship, but when we had the Libyan raid in 1986 we had to reveal a certain amount of intelligence in part justification for the action we took, which is, in fact, self-defence against terrorist activity. Unless you did some self-defence, it would go on. I was very worried at the time about the amount that we were revealing. America had decided, from their viewpoint, that some should be revealed, and, therefore, that had certain consequences for us, but undoubtedly it reduced some of the information we would otherwise have got in the future.

I say we are careful about it, but technically, the physical protection of a man or woman who has given it, for obvious reasons, I would always myself accept the advice of the head of the intelligence agency. I would not override it, because it would be a terrible thing to override.

Q: Ultimately, in the last resort, the question as to whether particular intelligence is available to use, is [end p190] going to be used, would have to be for Ministers?

A: Is available to use – I am note quite sure. I wonder, could you clarify the question a little bit?

Q: Yes. Intelligence has been procured, by one or other of the agencies, and is available to be used, but the head of the intelligence agency in question does not want it used, for source protection reasons.

If the policy departments, the actual departments which wanted to use it feel strongly enough about it, the question of whether it is to be used would lie in the last resort with Ministers, would it not?

A: No. It would rely in the last resort with the Prime Minister or the Foreign Secretary, who was the political head of the agency. Had it been another agency, it would have been the Home Secretary.

Q: I put my question badly. When I said “Ministers”, I meant the ministerial side of Government?

A: He would take the final decision, but he would take it after further consideration with the head of the agency. They might say, “I want to go to the Prime Minister”, but certainly if you wanted to override an agency, as I am saying, in the Libyan case we took a decision which we would otherwise not have taken. If it was an exceptional case, the final decision would lie with the Prime Minister and other Ministers who were [end p191] heads of the agencies, and the head of the intelligence who have political responsibility for the agency. If it went against the operative head of the agency, I would expect them to say, “I am going straight to see the Prime Minister”, and then would also consult with other Ministers before the final decision.

Q: The Prime Minister would then decide one way or the other?

A: Yes, in consultation with Ministers.

MISS BAXENDALE: I would like to now move on to the last batch of the Matrix Churchill ELAs. That is starting at page 51 of the questionnaire. Again, I am not going to go through all the documents we referred you to, but I am going to ask you, first of all, about the weekly survey of intelligence that is referred to on page 58 of the questionnaire, rather than go to the bundle. I can use it straight from the questionnaire. Do you have that?

A: Yes.

Q: We referred you to the weekly survey for 12th July, and, in paragraph 20, it was a long document concerning Iraqi procurement efforts in support of strategic weapons programmes.

In paragraphs 20 and 22, it referred to:

“In 1980 a number of companies with Iraqi [end p192] connections were established in London to procure weapons related technology”, and then there is a reference to TDG.

Then:

“In the latter 1980s, the Iraqis began purchasing European companies. One of the earliest and most significant examples was the TDG's acquisition in 1987 of a 97·5% stake in Matrix Churchill, which has since become a major supply to Iraq, probably for military purposes. The Managing Director of Matrix Churchill referred to approaching other manufacturers for replacement machine tools for Iraq, should those going from the UK be stopped by export controls.

The firm is also making parts for Iraqi project K1000, a possible weapons system.”

That report was copied to you, and it also provided extensive details about the Iraqi weapons procurement programme. I do not intend going to that, unless you want me to go back to the document.

As we say in the questionnaire, the ELA that we referred to in the next paragraph, in paragraph G, was an ELA that was for project K1000. That was one of the batch of Export Licence Applications that was approved in the wake of the ministerial meeting on 19th July 1990. Do you remember when we were looking at the Iraq [end p193] Note, we went through all the documents relating to machine tools? Do you remember I said I am going to come back to that?

A: Yes.

Q: I do not know if it is necessary. I hope we can remember the documents well enough, but do you remember the Foreign Secretary came and saw you after the meeting, and referred to the COCOM relaxation and the fact that the Cabinet meeting had agreed that the machine tools affected by the COCOM relaxation should be allowed through, and you approved that decision?

A: I was convinced by his arguments, yes.

Q: Exactly, you were convinced by his arguments.

I should say in the questionnaire you will see in paragraph E.3.3.2, page 59 of the questionnaire, K1000 was later identified as a nuclear related project. It is in the questionnaire.

A: It was later, not by 19th March.

Q: No, quite considerably later, by December 1990.

A: At that time, it was not known.

Q: What was known at that time was that there were worries about it, and there was the intelligence – the weekly survey that I have just referred you to on page 58 of the questionnaire, do you see, which is possible weapons system, it was referred to?

[end p194]

Did you appreciate at the time you were agreeing to the Foreign Secretary's recommendations that what you were agreeing to referred to some of the parts that had been identified in the weekly survey? Did you tie in that this reference in paragraph 22 on page 58, where it says:

“Firm is also making parts for an Iraqi project, K1000, a possible weapons system”, that those were the parts that were going to be released after the meeting on 19th July 1990?

A: I referred you to the report of the meeting, not the meeting with the Foreign Secretary, but the report of the meeting on 19th July, which is something, as I say, that I am not quite certain that that is right. The Foreign Secretary came to see me and he said certainly that machine tools and lathes would be released. I understand that the only reason that these were released by COCOM was they were not the ordinary machine tool. There is nothing against exporting a mechanical machine tool. It will not require an export licence.

The thing that makes this particular lathe subject to licence is a small computer control, which we imported from Japan – not we – which the firm imported from Japan, and, therefore, in order to be exported from here, that required a licence.

[end p195]

They knew that I was particularly anxious, always, about anything nuclear, or anything to do with chemical weapons.

When I looked at the meeting on the last page, the meeting which the Foreign Secretary chaired, at the top of the page, it says this:

“Decisions on export licences should continue to pay full regard to the United Kingdom's international obligations in respect of NPT and chemical and biological weapons.”

They then go on to say:

“There should be no special constraints on export of machine tools and other industrial goods to Iraq and Iran.”

It is to say at the least ambiguous and it can only be sorted out when you look at what was released internationally under the COCOM agreement, which had been reached a few days or weeks before, I am not quite sure which, and what was still maintained, one had a certain amount of comfort, but if it was anything under the Nuclear Non-Proliferation Treaty, somehow it would be caught.

Whether that is so, I do not know.

LORD JUSTICE SCOTT: Did the concern which you particularly had in relation to nuclear proliferation and chemical [end p196] warfare weapons extend also to ballistic missiles?

A: I think it would, yes, but let me say this, I do not want to put words into my mouth after what happened. I was particularly concerned about nuclear, and particularly concerned about chemical weapons, and I thought that there was some protection for both of those, which of course were the ultimate – we were not exporting lethal weapons. The advice had been put to me, which I thought was convincing. Because the international community had released whatever they had released under COCOM, a batch of things, they had kept something and released others, we could not – and I think it is in this meeting – have a special arrangement for Iraq and Iran. If you look at the minute, we see, again, a certain amount of ambiguity, but DTI found no ambiguity. If we could look at the minute of the meeting after Douglas Hurd had spoken to me –

MISS BAXENDALE: His note to the Secretary of State?

A: The Secretary of State's note.

Q: It is DTI 41, 2454.

A: SCS 90, 149. The note which the Foreign Secretary wrote, following his meeting with me, which I said I found convincing, I had said I found his presentation convincing. This was how he regarded it. You have to [end p197] some extent got it in your –

Q: I think it is at page 2454 of DTI 41. Or do you mean the short letter? You may be meaning the short letter.

A: A short note, labelled “Defence sales to Iran and Iraq” addressed to the Secretary of State for Trade and Industry, written by the Foreign Secretary, 1st August 1990.

Q: If you go to DTI 41, page 2454?

A: Is it the same thing? We have different classifications. This is the one. It is the same one.

He saw me on 26th July. He did not make a written submission, because he was coming to see me on 26th July, and the meeting had proposed a significant relaxation in the Guidelines as to what were licensable.

He then went on to say to me:

“But, in view of the dispute that had arisen between Iraq and Kuwait and the new threat relating to peace, this is not the time to make final decisions. I would like to delay putting my recommendations for a few weeks.”

He returned to that in paragraph 3 and said:

“I look again at our recommendations in September”, and this appeared to apply to the whole note, “with a view to putting them to the Prime Minister, if conditions in the Gulf make this sensible, [end p198] or holding a further meeting if this seems necessary.”

Q: I do not think it applies to the whole note.

A: One moment. You can argue either, and I think it was taken differently. In the middle is:

“I said, however, I thought it was right as a separate measure to relax our restrictions on industrial goods”, and I read two as a separate matter. “Relax our restriction on industrial goods, particularly machine tools, which have until now been caught under the old COCOM arrangements. I explained”, said the Foreign Secretary, “there was no justification for making special additional provisions to keep these controls in place for Iran and Iraq and that had concluded that these controls should, therefore, lapse.”

I do not think they could lapse. I think an order would have had to be made. You then get in paragraph 3:

“The Prime Minister has accepted these points and propose we now proceed on this basis. I will look again at our recommendation in September.”

I took the construction, I think, that Miss Baxendale has just taken, that there was a separate direction with regard to the COCOM arrangements. Others, I know, have taken it that paragraph 3 applies to the whole thing.

[end p199]

However, I understand that licensing does not just lapse. An order has to be laid. DTI, when they receive this minute, apparently laid an order on 1st August, to take effect on 11th August. That is on the face of the document.

LORD JUSTICE SCOTT: In fact, what could be done pending 11th August is simply to grant licences for the goods that are covered by the intended relaxation?

A: On the early hours of 2nd August, Iraq marched into Kuwait and the order never took effect. It all came to an end, and, from the following Monday – I am not quite sure, was it 8th or 9th, the following Monday. I was in the United States. They went in in the early hours of Friday morning. I was with President Bush, and the following Monday there was the United Nations resolution of overall sanctions which actually took effect, not immediately, on August 9th.

In fact, if I am correct, the goods never went.

MISS BAXENDALE: I do not think the goods ever did go, but I am sorry –

A: The goods never went, and there was no relaxation of the Guidelines.

Q: Can we understand, you were saying, I think, that you thought paragraph 3 on page 2454 meant that the Foreign Secretary was going to come back to you in September [end p200] about the restrictions on the machine tools covered under the –

A: I personally took the construction which I think you have taken, which was that paragraph 2 was a special case.

LORD JUSTICE SCOTT: That is right.

A: And that, I think, is the construction which DTI themselves took. Otherwise they would not have laid the order. It is a matter for your Lordship.

Q: I have not actually come across anyone who has adopted the other construction.

A: I have.

Q: At any rate, you and I agree on the construction.

MISS BAXENDALE: In any event, it is quite clear from the note of Mr Powell of your meeting with the Foreign Secretary that this is referred to as one area where movement was possible?

A: Yes.

Q: I do not think you have yet answered the question I was asking at the beginning, which was, when you had this meeting with the Foreign Secretary, did you realise that the goods that were under discussion, these machine tools that were now not going to be caught any longer, were the ones that were referred to in the weekly intelligence report of 12th July 1990?

[end p201]

A: He referred only in general terms to them and not in particular, and, as he has indicated, and, as I say, I still do not know whether we have other fallback catching arrangements under the non-proliferation treaty. I confess, I do not know whether there are special arrangements there or not. If not, then it is quite clear from what the Foreign Secretary said to me, if everyone else was going to release those COCOM arrangements, so that all of the equipment would have been supplied to the East bloc, including the Soviet Union, we could not have special arrangements for Iran and Iraq. That seemed to me pretty convincing.

LORD JUSTICE SCOTT: So far as paragraph 2 of the document at 2454 is concerned, and its reference to machine tools, machine tools, as everyone knows, can be used for making various things, including conventional munitions, including ballistic missiles, including components for nuclear weapons, and so on. Did you, in your approach to what was going to be done about machine tools, distinguish at all between the various uses to which machine tools might be put in that way, that is to say conventional munitions, nuclear weapons, ballistic missiles, or –

A: No, I did not. I knew that there were special arrangements for the non-proliferation of the missile [end p202] technology, and, of course, we ought to be sensitive to chemical or biological. However, if these things were going to be freed to be supplied to the old Soviet bloc, it seemed to me that the meeting had been justified in saying that there is no point in our having a special arrangement, other than the international arrangement on nuclear non-proliferation, et cetera.

Q: At the time we are speaking of, we are in July 1990, had you been told or made aware that, over the previous two years or so, a large number of machine tools had gone from this country, to the manufacture of conventional munitions in Iraq?

A: No, I think I was first alerted to it, although I may have seen something before, because I think we were asked questions in the House about the procurement organisation, which we did not seem to have power to close down, because it was an office, a procurement organisation for Iraq operating in London, and we did not know whether it was procuring any weapons in London or using an office for procurement. When I asked, I was told we had not the power to close it down.

What was the other part of the question?

Q: I asked if you had been made aware of the fact that a large number of machine tools, from the beginning of 1988, or perhaps a little earlier, onwards had gone to [end p203] Iraq and been applied to the manufacture of munitions?

A: No, I have no recollection of that, and I think that I remember the first – I recall, it seemed to me to be the first authoritative reference to what was in Nicholas Ridley's minute we have just gone through.

MISS BAXENDALE: It looks from the document we have seen that certainly Number 10, I do not know if it is you or your Cabinet Office, cause the beginning of the Working Group on Iraqi procurement, and that was as a result of intelligence that I thought you had seen about – it was the nuclear centrifuges, and that was in the Working Group on Iraqi procurement, which was set up in May 1989, and the intelligence documents, I think, come from January 1989 onwards. There are references in them to Iraqi procurement efforts?

A: I think I was asked about it in the questions in the House, directly or indirectly. We did not close it down.

Was there also –

Q: There is also the question about Learfan.

A: Learfan I know. Learfan was stopped. I know that Learfan was stopped.

Q: I think that certainly the documents look as though it was your interest in the procurement activities on behalf of Iraq that caused the start of the Working [end p204] Group?

A: Nuclear capacitors, I think there was a note in about spring of 1990, March or April of 1990.

Q: This is much earlier.

A: I suddenly saw this. I think it would have been an intelligence document, whether it was in the red book, or I had been told that Customs had found these. They were not made here. They were in transit to Iraq through this country. They were discovered in a very good piece of work, I thought, by Customs. That immediately prompted me to ask for more information about nuclear capacitors and there was one other thing.

It was as a result of that that they began to prepare what became known as the Iraqi Note, and then began to really consider the Guidelines.

LORD JUSTICE SCOTT: Did you ask to be kept informed about the extent to which machine tools were going for conventional weapons' manufacture?

A: No, I do not think so. I had two particular things, which were nuclear, for very obvious reasons, and, no, we were not exporting the lethal equipment, as I have said. And I did not answer that question.

Q: This is not an export of lethal equipment. It is the export of machines which can make lethal equipment.

A: Dual-use, yes. No, I did not. Not as far as I can [end p205] recollect, because it was the nuclear thing and chemical weapons which were of particular concern and it was the nuclear capacitors that had alerted me to ask for more information.

MISS BAXENDALE: I would like to go now to the letter at CO32/PM3, page 33, which is a letter of 20th June 1990 from DTI to Customs and Excise about a visit that was going to take place at Matrix Churchill. This letter was copied to Mr Powell at Number 10. You have the letter in front of you?

A: Yes, it is referred to in one of these documents, is it not? You have raised it in connection with another document. Was it the Iraqi Note?

Q: It is in a letter from Nicholas Ridley that caused the Iraqi Note. Do you remember, when we went through that –

A: There is a whole batch of things

Q: We do not need to go through all of them. What we are looking at is CO32/PM3, page 33. What you are referring is Nicholas Ridley's note, where he says:

“Today Customs and Excise are going to visit Matrix Churchill”, and he set out the problems he saw with trade with Iraq, when this visit was reported. The letter is dated 20th June 1990. It was copied to Charles Powell, as I say, and it is from DTI, to Customs [end p206] and Excise. It refers to the fact that the Secretary of State would shortly be writing to the Prime Minister, asking that Ministers should collectively and urgently discuss the issues connected with this case. That, then, turns into the document that we have already looked at, which then causes the Iraq Note.

What I wanted to know, though, is did you see this document at the time, around 20th June 1990?

A: This is the letter to which you are referring?

Q: Yes, It goes to Number 10. I think

A: No, and nor would I expect to have seen it, because you have “the visit is for fact finding only” and, “no action would be taken without consulting Ministers” when it was referred to in Nick Ridley 's document:

“I understand that Customs are today making an ostensibly routine visit to their company and report on what, if anything, they uncover”.

I am not aware whether they found anything. I had the impression that they did not. Otherwise I would have had further action.

Q: Eventually their actions result in the prosecution, but they did not find anything –

A: I do not know where I get it from, but I have the impression that nothing was found on that visit. Otherwise I would have received a further note.

[end p207]

Q: There was then a reply to that

A: Or I would have received the result of the exercise.

Q: The only reason I was going to ask you to look at it, and I was wondering if I could do it from the questionnaire – perhaps not. Could you go to FCO 62/14, page 2781? There the Chairman's Private Secretary is replying to that letter, and he sets out in paragraph 3 that, while he is going to consult with the other departments:

“In order that we are aware of all relevant factors, I must make it clear that the decisions about any necessary follow-up action in the event that goods were identified by the DTI subject to export licence controls would rest with the commissioners of Customs and Excise in accordance with their statutory responsibility.”

That sets out the role of Customs. Of course, that letter was also copied to Mr Powell, as it says in the final paragraph.

We referred you to an exchange between yourself and Mr Kinnock on page 65 of the questionnaire, rather than going to the actual bundle, we can look at it. It was an exchange on 24th April 1990.

In that, you set out that:

“Investigations are in hand by Customs and [end p208] Excise, which is the proper authority, to discover the facts and it is getting together all the documents. It is for Customs and Excise to make a decision on how to proceed.”

A: Bearing in mind I did not know the question was coming, I thought I had got quite a bit of relevant, accurate information.

“It is for Customs and Excise to make a decision on how to proceed. In the meantime, we should congratulate it on intercepting parts of the gun before they reached Iraq”.

This is in connection with the Iraqi gun.

Q: Yes, the Supergun.

A: Yes, the Supergun.

Q: We have seen the investigative role of Customs and Excise, and the prosecution role of Customs and Excise. While you were Prime Minister, did it ever come to your mind whether it was suitable that Customs and Excise combined both roles?

A: No, it did not, as I think you probably have seen from some of the documents. I was meticulous to see that at no stage did we have influence whether or not a prosecution should be brought. It was not for us. I was absolutely rigid that no politician should attempt to say to any prosecuting authority, whether it was [end p209] Customs and Excise, Inland Revenue or the DPP, whether that prosecution should or should not be brought, because I have said many times in the House of Commons the moment politicians decide on whether a prosecution can be brought, that day freedom dies. That is a matter for the justice side of a free society.

If ever we were asked, as we had to be asked sometimes by the Attorney-General as to whether there was a public interest involved, I would always say, we are asked to give our views and we make it quite clear, the final decision is that of the Attorney-General or the DPP, if it was in conjunction, and not for us.

So it was a thing that I was absolutely meticulous in seeing that it was applied. In my mind, Customs are the prosecuting authority, Inland Revenue are the prosecuting authority, and I had not separated out the investigative powers and the prosecuting authority powers.

I do not know that I would have been expected to look at it that way. I had the impression, maybe going back years, that there were times when the police were the investigative authority and the prosecuting authority. So they would have the two, and it did not strike me as requiring a change.

When I saw it and some associated questions in the [end p210] questionnaire, which you very kindly sent to me, it did not seem to me the kind of question one could give a snap answer. If ever you are doing anything as big as that, and it is big, it is a real big issue, of changing or dividing the investigative function and the prosecuting one, that is a matter for really quite weighty consideration. It has not struck me.

The other thing was so engraved in my mind and all my political life, you never interfered with the prosecuting authorities.

If it is going to be changed, I would most respectfully suggest it is a big issue, it is not one on which one should give a view, without asking for, again, great consideration to be given to it, what the difficulties are, with having the two in the hands of the one authority, whether it is better to have the prosecuting powers in the hand of the authority which is accustomed to deal with all the details, or not.

I do not think it is something on which one could toss out an answer that would have any weight at all. Because of the way I tended to work, if I was asked to give a reply on anything, bearing in mind that there are many, many other Ministers, who long before it comes to me will have considered this matter, I would require a very deep paper on it and the answer from me would be it [end p211] must be referred to those who are both prosecuting and investigating authorities and some people who have independent experience of the law.

If that is the way that his Lordship thinks, that is a matter which would be, I think, for deep and further consideration, but I would not necessarily accept a premature conclusion myself in any way.

LORD JUSTICE SCOTT: I understand that.

MISS BAXENDALE: The one thing I was just going to pick up on about Customs, it is rather different from the DPP, that the Attorney-General has a duty to superintend the DPP and the SFO in a way that he does not have a prosecution role of Customs. There seems at the moment a slight lacuna as to who is answerable for the prosecution role, not the investigation role, but the prosecution role of Customs and Excise. Again, I wondered if you had considered that?

A: No, I have not. I had not got down to consider these, which are very weighty matters, very weighty matters indeed. If you are changing the responsibility for those I think you must have very good reason. I usually say those who want to make a change must prove the need for a change and prove that it is better than what we have now. So not only do you have to look at it afresh, but I think that you have to give the reasonable proof [end p212] or reasonable view that it would be better than any existing arrangement.

Q: I think you were saying that you thought you remembered questions about the division of the two roles and it is Crown prosecution – the introduction of the Crown Prosecution Service, the matter was

A: I remember that very well. For a very, very long time before that, I seem to remember, it takes me back a long way, that the police were both investigative and had the prosecuting authorities. It is not new for those two to be together and then, obviously, one needs to have a look at the effect of separating it.

Q: Before we finish this point, if you look at page 63 of the questionnaire, we referred you in this context to a Cabinet discussion on 15th November 1990, in relation to the Supergun prosecution. It is page 63 of the questionnaire, at the bottom, E.9, do you see:

“The following discussion took place in Cabinet on 15th November 1990.”

A: This is on Supergun.

Q: Yes, it is about Supergun. It sets out the background to Supergun, and then about ten lines down, it says:

“At Sheffield Magistrates Court later that day, a representative of the commissioners for Customs and Excise would ask for charges against Mr Mitchell and Dr [end p213] Cowley to be withdrawn. Until that point, the case would remain sub judice, but thereafter it would be open to comment. Decisions on investigations of Customs offences and possible prosecutions were statutory responsibilities of the commissioners in their role as an independent enforcement agency. They had come to their decision very independently after having taken the advice of Senior Treasury Counsel and after consulting the Attorney-General.”

Had you had any involvement in the decision to drop the prosecution relating to Supergun?

A: No. If you look further down, you will find my summing up of this discussion:

“The Prime Minister: Summing up a brief discussion, said that it was important in any statement to underline the statutory independence of the commissioners of Customs and Excise in reaching their decisions on possible prosecutions. Until the commissioner's statement had been made in court, the matter remained sub judice. Briefing was in hand in case the issue was raised in Question Time later that day. There was likely to be pressure for an earlier statement.”

It is the point I always make “we must not interfere with…”, and if a thing is sub judice, we [end p214] leave it. It is a very important point to me.

I have great difficulty in explaining this to iron curtain countries who do not understand at all and it always seems to me, once a politician interferes, there will be no end to the interference and, therefore, I think these things should be kept absolutely separate. Once a politician can say or does attempt to say that prosecution must go ahead, or that prosecution must be dropped, then you have stepped over the borderline. That reply will be given by those who are less skilled or perhaps or less knowledgeable. The Attorney-General is a political appointment to which the answer is he has a legal persona, which is separate from his political capacity and sometimes he will consult politicians if there is a public interest involved. When he does consult us, then we are all together and we make it quite clear that he is asking us what our view is: “It is for you, the attorney, in your legal capacity to make the decision”, and I do not think I would wish to depart one bit from that. It has served this country and I think it has served us very well.

Q: I would like to ask you some questions about export credit guarantees for Iraq. I am going back to section B of the questionnaire, page 30 of the questionnaire, and I would like to use a document that you referred to [end p215] there, but which we need to turn to. It is in ECGD 13/2. It is the second document. It is headed “The defence allocation”. Do you have that?

A: Yes.

Q: In paragraph 1, it sets out that:

“The UK Iraq financial protocols were originally intended to finance UK participation in Iraq's civil development programme under the first 250 million tranche. No support is given for any defence related contracts on the grounds that such business could not contribute by definition to the development of the programme.”

Then it goes on in the second paragraph:

“The second 250 million tranche in 1984. It was agreed by the Export Guarantees Committee, that a contract for ancillary non-lethal defence equipment could be considered case-by-case within the limits set in August 1985 of 25 million, and this limit, which is referred to as the defence allocation, was subsequently increased in December 1985 to 50 million, eg from 10% to 20% of the total facility.”

Then it refers to the fact that all cases had to be individually approved by the Committee with a view to members being satisfied that the support for credit under the protocols would not be controversial and that [end p216] that was in addition to scrutiny by the IDC, which was the body that was making sure there was compliance with the Guidelines.

Clearly the United Kingdom is a trading nation and it is in the national interest to encourage trade. However, what I wanted to ask you about was how was it appropriate to have a defence allocation under the financial protocols at all?

A: Because we were, in fact, agreeing to the licensing of certain equipment which could go to Iraq, and, therefore, some of that equipment would never have been prepared, because they would not have had, in fact, the assurance they would be paid for it. This is what an export credit guarantee is for. As we were operating we thought a pretty tight control arrangement, it did not seem that we should exclude – if you excluded export credit guarantee, you mostly excluded the possibility of competing for equipment that was rightly permissible to be exported. You just cannot do it.

Q: Then do you think that, in the light of Britain's stance in respect of the supply of defence equipment to Iran and Iraq, it was appropriate that this allocation, was doubled to 20%?

A: Yes, but the actual amount that was used was comparatively small. As I recall – and perhaps someone [end p217] will correct me if I am wrong – the total amount of trade –

Q: It is paragraph 4. It is the end of paragraph 4 that we referred to you to where it says:

“Defence related goods were tightly controlled and took up just over 6% of the credit”

A: It would have been very much easier, obviously, if all exports had been stopped. That was what happened after the invasion of Kuwait, then you know where you are, except that you have probably lost all of the credit money you have ever given to industry and then the taxpayer has to make it up. That is easy. We were not operating that. My recollection was that there was quite a bit of trade going on with Iraq that continued to go on. She was quite a reasonably sized customer. Somewhere in my mind I have 600 million, but I cannot remember the period to which that relates.

Q: The document goes on, there are schedules attached to the document. I do not know if you are thinking of that. That is not 600 million, though.

A: That gives particular ones. That might be over a larger period.

Q: That gives defence equipment from 1st January 1984 to 1st August 1990.

A: Although the allocation was increased, only 54 million [end p218] was spent.

Q: On defence equipment, because I think

A: It was spent on defence equipment.

Q: I think, although this schedule says in its title “and dual-use goods”, in fact, I do not think we have the figures for dual-use goods, because ECGD did not keep records that you can work it out from.

A: I think it was stated in your document that the total amount of funds made available for defence related business under protocols amounted to 54·3 million of which 2·9 million was not drawn down, so it was not 54·6; it was less.

“Of this total Iran has already repaid 25 million. That leaves 26·4 million outstanding.”

Q: Can I go on asking you questions about this?

A: I have 600 million in my mind, but I should withdraw it.

Q: You can tell us about it later, if we come back to it.

A: I have seen it somewhere, so perhaps we should not think further about it and stick to the fact that, of the 54·3 million, 2·9 million was not drawn down, which is in this document.

Q: This defence allocation financed each year, and so it was being continued in 1988 and 1989 and 1990.

We have already heard about your reaction to Hawk [end p219] and you have told us about that Cabinet meeting in respect of Hawk. Did any consideration, such as the ones you referred to in that meeting, occur to you in relation to the defence allocation, or did any Ministers raise any points about whether this credit should be being provided for defence related equipment?

A: When you are considering about 54 million and Hawk in the same breath, and there were many, many aircraft on order, I think we might have had to increase the defence allocation, had that been approved.

Q: Sorry, I do not think you are understanding my question.

A: 54 million is not very much.

Q: What I was asking you about is you have told us how, in the Hawk Cabinet meeting, you were very concerned about the integrity of Britain and that Britain should not provide Hawk to Iraq, because Iraq was not the type of country you wanted us to deal with, with that kind of equipment. The great concern that was felt over the position of the Kurds. What I was asking you was did those kind of considerations, ie British integrity and the position of the Kurds, arise? Did any Ministers mention them, or did you think about them when the financial protocols were being agreed each year, that 20% of the credit was being provided for equipment to go [end p220] to Iraq?

A: No, either it would have been for defence related equipment, which was not caught by the Control of Goods Order, or else it would have received a licence under the Control of Goods Order.

If you did not have some export credit available, then they could not have gone ahead and produced it, or would not, particularly in view of the amount of debt that was already owed to us by Iraq, an amount that was comparatively small. As I said, I think I took one of your figures, only some 6% of the total went on defence related goods.

Q: Again, did any concerns about Defence Procurement efforts of Iraq come into play when considering the defence allocation?

A: I myself did not consider the defence allocation and I cannot, I am afraid, give you details on that front.

Q: What I am going to deal with next is I wanted to ask you briefly about the use of diversionary exports and the use of diversionary routes for exports to Iraq. I am going now to very nearly the end of your statement, G, page 68.

We know that after the invasion of Kuwait you were personally involved in discussions with the King of Jordan, but I want to ask you about the period before [end p221] the invasion of Kuwait and the period before sanctions.

If you have before you the questionnaire, we referred, on page 68 in paragraph G.2.1, to the intelligence requirement that was centrally from 16th October 1985 onwards. Do you have that?

A: Yes.

Q: We also referred you to the NBC Guidelines. That is in paragraph –

A: G.3.1?

Q: Exactly, G.3.1, we referred you to the various versions of the Guidelines. At page 69 of the questionnaire, we referred you to paragraph 4 of the 1988 version of the NBC Guidelines and paragraph 4 says:

“The supply of any item which might assist Iran or Iraq to wage chemical warfare will not be authorised. Therefore current policy is to prevent sale or diversion of CW equipment to Iran or Iraq.”

It is picked up in paragraph 8:

“Countries known or suspected of diverting military equipment to Iran or Iraq are set out in Annex E”.

One of the countries listed in Annex E was Jordan. Were you aware of concerns? This is before the introduction of sanctions. Were you aware of concerns about Jordan being used as a diversionary route for [end p222] equipment to get to Iraq?

A: I cannot tell you that. I know that in August 1990, after the invasion, the information was put to me, because the King of Jordan was coming to see me, that it was known that Jordan diverted goods to Iraq. This is extremely serious, and was totally unacceptable, the more so because we had a very good and friendly relationship with King Hussein.

Evidence was put to me that I thought was horrifying, and it appearing that certificates saying that the weapons supplied to Jordan were for Jordan and not to be diverted, had been signed quite high up, very high up in the army.

When I saw the King, there were many matters to discuss with him, the one being that he appeared to be on the side of Iraq, which to us was horrific.

The second I tackled him about was some of this evidence that goods which had been supplied to Jordan in good faith, as a friend to this country and to which we had shown friendship were, in fact, being diverted.

He was very, very taken aback indeed. I do not know whether he knew or whether he did not, and I eventually said to him, as he denied it, either he denied it or he did not know about it, but he was very distressed: “Well, then, will you give me your personal [end p223] assurance that these goods would not be diverted?” Immediately he came back and said: “I give you my personal assurance.” How far should one rely upon that?

The stability of Jordan was important. His Lordship may recall that, in early 1970, the Black September movement. He may not, but I do, in early 1970, the Black September movement was very active in Jordan and virtually was in danger of taking over.

There was martial law, and eventually, the army sided wholly with the King and the King was very active with his generals and that part of the PLO, the violent part, left and of course went to Lebanon.

They always had a destabilising danger. I had visited PLO camps in Jordan. There was a possibility that this rather remarkable country and this very, very courageous king, who never flinched from physical danger, might be destabilised. That would not have done British interests any good at all, nor would it have done countries in the Gulf any good at all, particularly at this time when Iraq had invaded Kuwait, and we had in addition to deal with that destabilisation in Jordan, because undoubtedly quite a number of the people in Jordan were on the side of Iraq and, indeed, one saw photographs to that effect. To destabilise Jordan would [end p224] have been a very, very serious matter indeed. So we took the course of doing as much as we could and seeking what for the King was unusual to give a personal assurance.

I hope, therefore, that I have explained what was in our minds. Life is a question of alternatives. Possibly with the alternatives that you face, neither of them are very palatable.

LORD JUSTICE SCOTT: Did you have any inkling of the problems before the events that followed the invasion of Kuwait?

A: The problems with Jordan?

Q: Yes.

A: There was an agreement that Jordan and Iraq and Egypt and Yemen form a grouping. The background was this, the King, some time before, had changed his whole policy with regard to the West Bank for years. The Administration moneys had been for the West Bank, which used to belong to Jordan, which had been paid by Jordan. Jordan was a poor country and eventually the King decided to fall out of paying the Administration. He thought that would mean he had more money for other things and he needed it. His people needed more facilities. It did not work out that way, but it had certain repercussions in the Gulf because Gulf [end p225] countries, which had financed him and financed the material for his army, gave notice that they were no longer going to finance him after a certain period, because he was no longer the key to the solution of the problem.

So there were problems, and this had caused a strange alliance which was pulled out of when we got into trouble with Iraq.

That was not trouble, it was surprising.

Q: I follow that, but the particular problem that has come to the attention of the Inquiry relates to the extent to which exports to Iraq, which would never have got there directly, were finding their way there via Jordan, either just as a mere matter of transshipment, which perhaps is not that serious, but also by means of false end user certificates and the like, suggesting that the destination was Jordan whereas, in fact, it was not.

That was a problem which did come to your attention after the invasion of Kuwait, but did you have any inkling of that sort of problem before then?

A: No, I did not. I confess that I was surprised. Maybe I should not have been, but we had a very good relationship with Jordan and we had a very good relationship with the king and between Jordan and ourselves and the United States. So it was a surprise [end p226] when he came to see me, and in preparation for that meeting I was given the full list. It was then that I said the question was what alternative do you use? The path we took I have described.

LORD JUSTICE SCOTT: Lady Thatcher, I am sure you will be glad to know that we have come to end of the questions which we wanted to ask you and I am very grateful indeed to you for your time in helping us with them. There is, in fact, one area of unfinished business. Very recently the Inquiry was provided with thousands of pages of documents from a particular individual who had promised them to us and came up with them. We have not got anywhere near sorting out what the bundles contain. We are going to have to do that, and it is possible, I do not put it any higher than a possibility, that we may want to ask for your assistance on some of them subsequently. I thought I ought to raise that now.

A: I have been warned.

LORD JUSTICE SCOTT: That is a marker. Subject to that, I am very grateful for you for coming. There will be a transcript of prepared of everything that has been said in the course of today, which we will supply to you as soon as we can, and, if you have time to read it, and if it occurs to you that there is anything that you wish you could add or that you would wish to correct, then we [end p227] would be very grateful if you would do that.

A: I fear there will be much grammar to be corrected.

LORD JUSTICE SCOTT: Never mind grammar, that is the least of the problems.